• C++ Programming for Financial Engineering
    Highly recommended by thousands of MFE students. Covers essential C++ topics with applications to financial engineering. Learn more Join!
    Python for Finance with Intro to Data Science
    Gain practical understanding of Python to read, understand, and write professional Python code for your first day on the job. Learn more Join!
    An Intuition-Based Options Primer for FE
    Ideal for entry level positions interviews and graduate studies, specializing in options trading arbitrage and options valuation models. Learn more Join!

CDX IG vs HY

Joy Pathak

Swaptionz
Joined
8/20/09
Messages
1,330
Points
73
So what could be possible reasons for IG index to be more volatile than HY ? Annualised volatility (historical-since inception) is higher for IG. Even during crisis it's higher.

Any thoughts ? The general understanding is that HY would be more volatile. bob
 
Could it be because HY products are already known to be junk, whereas IG products aren't? As such, they (IG) are more susceptible to and overreact towards downgrades/price movements etc.
 
i think the question can be answered through another question.
'why is the bid-offer spread of IG index almost always more than HY??'
you can see their current levels at http://www.markit.com/en/
you will see the reason is that IG is always quoted in bps while HY is always quoted as a price.
to be more elaborate when IG moves by 5 HY moves only by say 2.
the 5 is 5 bps on 92(bps) while 2 is 2 % on 101(price).
thus the volitility of IG would be almost always greater than HY because of a scale difference.
 
i think the question can be answered through another question.
'why is the bid-offer spread of IG index almost always more than HY??'
you can see their current levels at http://www.markit.com/en/
you will see the reason is that IG is always quoted in bps while HY is always quoted as a price.
to be more elaborate when IG moves by 5 HY moves only by say 2.
the 5 is 5 bps on 92(bps) while 2 is 2 % on 101(price).
thus the volitility of IG would be almost always greater than HY because of a scale difference.

I have data in spread for both.

Your point about quotes is right. But, I have data in spread so that's not an issue.
 
Back
Top