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So Now We Know. Or Do We?

24 June 2016 by lberuti

The outcome of the UK referendum took markets by surprise, and the decision to leave the EU was nowhere near priced in the creditland yesterday. The open, which took place a few hours earlier than usual, reflected that shock. iTraxx Main (ITXEB), iTraxx Financials Senior (ITXES) and iTraxx Crossover (ITXEX) were quoted respectively 28bps (at 105bps), 55bps (at 150bps) and 77bps (at 435bps) wider. Some impressive volumes went through and several dealers reported trading activity in excess of $10bln on indices only. This activity brought indices substantially off their widest levels, and they roughly closed on last Thursday’s wides. The action we have seen last week definitely helped to clear some risk and allowed for what could be described as an “orderly sell-off” today. But one can only think that this is only the beginning, and that uncertainty surrounding the European area (let alone the UK) has never been higher. Let’s see how the general elections in Spain pan out over the week-end for a start. Do not sell these tail hedges yet.