Geopolitical tensions and doubts over US monetary policy loom large, but one micro event in March tends to dominate the credit markets: the semi-annual index roll.

The process is well established and runs smoothly. But the roll is always noteworthy, as the credit quality and geographical breakdown of the indices change, and this has an impact on how they trade.

First, the Markit iTraxx Europe Series 21 saw five constituent changes (five leaving, five new entrants). The average spread of the new entrants was very close to the five exiting names - both around 90bps - and the ratings mix was similar, so the impact on credit quality was small at the roll date. However, the longer maturity of the new series ensured that it traded wider than the previous series. The roll spread was around 9bps, with series 21 closing at 81bps on the first day of trading.

Perhaps the most notable inclusion was BBVA. The Spanish bank was formerly a member of the iTraxx Europe, but was removed in March 2012, when the sovereign debt crisis was unfolding and BBVA was trading in excess of 300bps (it peaked at 490bps in July 2012). BBVA's inclusion, at the expense of Dutch bank ING, increases the peripheral exposure of the Markit iTraxx Senior Financials index, though this doesn't have the serious negative consequences that it once might have had.

If the roll of the Markit iTraxx Europe was fairly uneventful, the Markit iTraxx Crossover index underwent a more radical change. Series 21 saw the number of constituents increase from 50 to 60, and the inferior credit quality of the new additions ensured that the on-the-run index traded significantly wider than the previous series. The roll spread was 64bps, with the Series 21 closing at 311bps.

Names based in the periphery continue to make up a large proportion of the crossover constituents - more than 25% - a reflection of the region's struggling economies.

Once the dust has settled from the rolls, credit participants can refocus on the plethora of issues that will determine medium-term spread direction. US monetary policy is probably the main driver of sentiment, and Fed Chairwoman Janet Yellen's hawkish comments on the timing of interest rate hikes disturbed the markets. Russia's aggression in Ukraine, and the ratcheting up of sanctions from the US and Europe, are another concern. More positive news came in the form of an agreement on an EU banking union, though there are doubts about the size and mutualisation of the resolution fund.

The markets are ending the week on a bullish note, helped by optimism around China. Reports indicate that Beijing is loosening its policy on corporate credit, but the balancing act between reform and short-term growth remains, and the path taken by the Chinese government will be one of the main drivers of sentiment this year and beyond.

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