Although synthetic portfolios of this kind are yet to roll out, they look set to be front of the queue once more consistent valuations can be identified. “The market is too volatile to do anything in bespokes,” says one senior structured credit banker. “But when it calms down, short-dated CSOs will be interesting.” Risk measures have risen across industries, as indefinite restrictions on travel and social interaction sap revenues while a hamstrung primary debt market fails to provide finance. But for some sectors, such as airlines and tourism, the biggest risk of default is in the next few months. These borrowers’ credit curves have distorted massively at the front end as investors reach for jump-to-default hedges. And, say fund managers, structured credit desks at banks have been quick to suggest tranched baskets of CDS for clients willing to sell protection at shorter tenors.

“This makes sense on some names,” says one portfolio manager. “Things look really bad for them right now, but if they can get through the next few months it could all start to change.” Until reliable signals are obtained on the scale of the crisis, investors will find it tough to price risk in a wildly yo-yoing market. The curves of three of the most affected credits in the iTraxx Crossover and CDX HY universe (see chart, above) put this problem in stark relief. None of these curves looks anything like the shape of a normal market, but it is clear that the risk for different sectors is viewed very differently. Challenges at American Airlines and travel operator TUI are seen as mostly near-term while Loxam’s riskiness continues to rise beyond 2020.