Index values reflect recent banking volatility

The latest fixings for the SRTx (Significant Risk Transfer Index) have been released. The most significant change in the index values since March’s fixings (SCI 3 March) is that – perhaps unsurprisingly, given recent volatility in the bank sector - spreads have widened across all segments, except European SMEs.

This month’s survey responses suggest that spread estimates have widened by 6bp (representing a +0.6% change) and 67bp (+7.7%) for European and US large corporate transactions respectively, and by 22bp (+2%) for US SME transactions. In contrast, spread estimates for European SME transactions have tightened by 42bp (-3.3%).

The SRTx Spread Indexes now stand at 1,100bp, 929bp, 1,233bp and 1,139bp for the SRTx CORP EU, SRTx CORP US, SRTx SME EU and SRTx SME US indexes respectively, as of the 3 April valuation date.

For the SRTx Volatility Indexes, while the values show a decline of between 10% and 22.2% month-on-month for US large corporates and European and US SMEs, most values remain above 50 – suggesting that the bias is for higher levels of volatility in the near term. The outlier is European large corporates, estimates for which increased by 10%.

The SRTx Volatility Index values now stand at 55, 56, 44 and 55 for the SRTx CORP VOL EU, SRTx CORP VOL US, SRTx SME VOL EU and SRTx SME VOL US indexes respectively.

Meanwhile, the SRTx Liquidity Index values point to worsening sentiment across the board, rising in a range between 12% and 30%. The indexes now stand at 65, 70, 65 and 70 across SRTx CORP LIQ EU, SRTx CORP LIQ US, SRTx SME LIQ EU and SRTx SME LIQ US respectively.

Finally, the SRTx Credit Risk Index values rose for large corporates (by 1.8% for Europe and 9.1% for the US), declined for European SMEs (by 13.8%) and remained the same for US SMEs. The indexes now stand at 70, 75, 70 and 75 across SRTx CORP RISK EU, SRTx CORP RISK US, SRTx SME RISK EU and SRTx SME RISK US respectively.

SRTx coverage includes large corporate and SME reference pools across the EU and US economic regions. The index suite comprises a quantitative spread index - which is based on survey estimates for a representative transaction (the SRTx Benchmark Deal) that has specified terms for structure and portfolio composition - and three qualitative indexes, which measure market sentiment on pricing volatility, transaction liquidity and credit risk.

Specifically, the SRTx Volatility Indexes gauge market sentiment for the magnitude of fixed-spread pricing volatility over the near term. The index scale is 0-100, with levels above 50 indicating a higher proportion of respondents estimating volatility moving higher.

The SRTx Liquidity Indexes gauge market sentiment for SRT execution conditions in terms of successfully completing a deal in the near term. Again, the index scale is 0-100, with levels above 50 indicating a higher proportion of respondents estimating that liquidity is worsening.

Finally, the SRTx Credit Risk Indexes gauge market sentiment on the direction of fundamental SRT reference pool credit risk over the near term. The index scale is 0-100, with levels above 50 indicating a higher proportion of respondents estimating that credit risk is worsening.

The objective of the index suite is to depict changes in market sentiment, the magnitude of such change and the dispersion of market opinion around volatility, liquidity and credit risk.

The indexes are surveyed on a monthly basis and recalculated on the last trading day of the month. SCI is the index licensor and the calculation agent is Mark Fontanilla & Co.

For further information on SRTx or to register your interest as a contributor to the index, click here.

Corinne Smith