IHS Markit suffered a temporary outage on its intraday and same-day services for credit-default swap pricing on Monday amid a huge move wider in credit spreads.
The data provider’s European high-yield CDS index - the iTraxx Crossover - jumped about 120bp on Monday to nearly 500bp, its highest level since 2013 and on track for its sharpest one-day gain on record, according to Refinitiv data.
That came amid plunging oil prices on concerns over an escalating price war between Saudi Arabia and Russia. It adds further fuel to the prolonged sell-off in credit markets over the past two weeks, which was initially triggered by concerns over the economic impact of the spread of the coronavrius.
The massive move wider in credit spreads and enormous volatility in CDS prices led IHS Markit’s system to mark a lot of the pricing data it received from banks that trade these credit derivatives with a "low confidence score", according to a person familiar with the matter.
Because of the volatility of prices “the system didn’t trust the data it received,” the person said.
“IHS Markit is experiencing technical difficulties with the Intraday and Sameday services for CDS Single Name and Credit Indices as of 9 March 2020,” IHS Markit said in an email to clients earlier on Monday.
“Our technical and infrastructure teams are working to resolve the issue and will have an update in the next 2 hours.”
A spokesperson for IHS Markit said the disruption was temporary.
IHS Markit is a central source for data in the CDS market, collating and aggregating pricing information from trading desks for single-name and index CDS.
It is a highly unusual occurrence for it to report a temporary outage and underlines the extraordinary volatility in financial markets at present.
Traders have said liquidity - or the ease of buying and selling debt in large size - has been deteriorating in recent sessions amid the prolonged selloff in credit markets. The iTraxx Crossover index leapt 56bp on Friday. It has now more than doubled in less than three weeks from just 219bp on Feb. 21.
US high-yield debt markets are particularly vulnerable to a large drop in oil prices as many of the issuers in that market are energy companies.
"The weekend oil market developments could barely have come at a worse time for the US HY market," credit strategists at Deutsche Bank wrote in a note to clients. "Already starved of liquidity following the sell-off over the last two weeks, a near 20% plunge for oil overnight is likely to result in carnage in the market today."