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The Race To Zero

21 April 2016 by lberuti

It was a pretty quiet lead up to the ECB meeting, but for the second time in a row, Mr Draghi managed to surprise everybody. The details of the ECB Corporate Sector Purchase Program (CSPP), which were described today, were more aggressive than most market participants expected. The bond-buying program will include insurers and target bonds with a maturity up to 30 years. iTraxx Financials Senior and Subordinated consequently outperformed the rest of the credit market, which outperformed other asset classes (stocks were hardly changed on the day). The market reaction was about what was new, but it is also about positioning. Currently, the credit space in Europe seems to be underinvested on the margin, and whilst nobody is really excited about valuations, when nobody is long enough, the path of least resistance is tighter.