11 February 2016 by lberuti
The market thought yesterday that the worst was over, after a couple of days of respite for Financials. This morning, despite a poor session in Asia to mark the beginning of the Chinese New Year, people were still discussing how far credit indices could retrace if a squeeze tighter was to happen. But soon, equities began to head south and oil resumed its march lower, which was the signal buyers of index protection had been waiting for. Credit indices were pushed to new recent wides and iTraxx Crossover only stopped a couple of bps short of the 500bps level. The reach for protection was aggressive, but when looking at bases (difference between the quoted value of an index and the theoretical value computed from its constituents) across the board, one cannot help feeling we have not seen proper capitulation yet. There was one difference with previous weak sessions though: peripheral names were under particularly pressure, especially Portuguese ones, as highlighted by the 62bps widening of Portugal sovereign CDS to 356bps. Could 2016 mark the return of PIIGS?