The rally adds problems for CSO issuers, which have been hampered since July by ultra-low spreads and minimal volatility. Such portfolios often favour riskier names to achieve attractive yields. Anecdotally, bespoke mezz tranches have lately been the hardest for issuers to shift, and one senior specialist says CSO business will be a harder sell in 2020. Managed five-year CSOs could still get going in Q1, however, claims another.

The correlation rise accompanied troubled names pushing tighter in Crossover and CDX HY. Dispersion last year prompted dealers including Goldman Sachs and Morgan Stanley to offer markets in ‘Ex10’ versions of CDX HY and ‘Ex5’ Crossover portfolios, which strip out the widest constituents. Trend reversal spelt big wins or losses for traders of Ex5s and Ex10s versus the index. Boparan, the widest Crossover name, was 44.25 points up front in November, according to IHS Markit, yet just 20.75 by 17 January.

When Crossover was 230bp on 11 November, the Ex5 basket was 85bp tighter. In January, Crossover circled 220bp but Ex5 was less than 60bp tighter, meaning lower beta names underperformed the wide end.