13 September 2016 by lberuti
Yesterday the whole session was spent waiting for the speech of Fed governor Brainard. After Europe went home, she stuck to her well versed dovish script and made her view clear. She said that “in the presence of uncertainty and the absence of accelerating inflationary pressures, it would be unwise for policy to foreclose the possibility of making further gains in the labour market”. That triggered a pause in the interest rate rise that begun a week ago, and went a long way in explaining the positive close in the US which led to a much better tone in Europe during the early morning session. Credit markets then spent most of the day wondering whether they should be bull or bear, and iTraxx Crossover visited a couple of times both ends of a 320/328bps range for instance. But as soon as US interest rates resumed their march higher (10y traded at 1.74% i.e. 7bps wider at the time of writing), credit indices ran away wider. For the sake of investors who recently sold volatility, let us hope that it does not trigger large outflows from credit ETF. They are indeed sensitive to both credit and rates.