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Financials? Safe Haven No More

18 January 2016 by lberuti

The week picked up where we left it on Friday, with ongoing pressure across asset classes. Both Asian and European stock markets moved lower, and credit was firmly bid within the CDS space, ie risk premia were still on the rise. Despite the US holiday, the need for protection shown no sign of abating. The only change compared with what we have seen throughout the year thus far was that the safe haven status of the financial sector is beginning to falter. Within this space, protection for single names was well bid, focusing especially on Italian banks. This trend started back in late 2015, but it was exacerbated further today with headlines that the ECB will seek to toughen scrutiny on non-performing loans (NPL) management. Reflecting investors’ concern about lenders’ level of bad debt in the region, the market swarmed on the second tier Italian banks, especially MONTE ( Banca Monte Dei Paschi Di Siena ) which saw its stock close down almost 15%, and its risk premium surge another 35bps to 413bps. That fed to the rest of the space which was under pressure, and core banks and insurance widened alongside.