“Every family of tranches is up by a similar amount,” says one index tranche market maker. “iTraxx Crossover volume lags slightly, up 22%, but it’s very uniform at 30-35% otherwise, and the uptick in high yield business has been noticeable.”

CDX HY index tranche trading accounted for $45 billion as of 27 November and Crossover tranches, which only launched in 2014, had reached half that total with far fewer participants.

While the bulk of 2020 tranche business (around $120 billion) came in the first quarter due to the March sell-off, successive $50 billion volumes in Q2 and Q3 looked set to be surpassed in the final push. Having reached $30 billion at 27 November, dealers expected Q4 to surpass $60 billion in the final analysis, even with a trading drop from mid-December.

Anecdotally, Creditflux understands tranche participation is up by around 30% — treble the number five years ago. This has been met by dealer uptick, with five or six supporting European and US business rather than just two or three, as in prior years. “I would expect volumes in 2021 to fall back in line with the run rate to around $230 billion,” says the trader. “That said, most participants had a positive interaction with the product in 2020 and this has brought renewed confidence.”

Through November going into December, the big theme was spread compression, with outperformances in Crossover and HY indices, and junior tranches outperforming senior.

In 2021 investors will have to weigh knee-jerk reactions to events such as Brexit and stimulus announcements against returning idiosyncratic risk as businesses that receive government support perform better than those that don’t.