Deepening sovereign risk in some European countries is helping to create arbitrage opportunities for traders of a widely used derivatives index, according to analysts at Barclays Capital. The index reflects the credit risk of the continent’s top investment grade companies.

The Markit iTraxx main index of credit default swaps on European investment grade names has continued to trade tighter this year as the sovereign credit default swap spreads of many countries in which the companies are based have widened. That has brought spreads on their respective CDS in line - an unusual occurrence, given that sovereign debt is regarded as a safer investment than corporate debt.