31 March 2017 by lberuti
It feels like the FED and the ECB have been on a mission all week long to lower interest rate hikes expectations on both side on the Atlantic, and regain some sort of flexibility on when/how to tighten financial conditions. The immediate impact has been a recorrelation of rates and equities, which both rallied. As far as it was concerned, credit traded in a tight range, with a clear outperformance of the investment grade universe though. With a few extended week-ends on the horizon, low beta carry trades have become quite fashionable. For instance, 5-year 10-year steepners on iTraxx Main (ITXEB) – where one buys protection on June 27 maturity and sells protection on June 22 - gained 3bps since the roll and ITXEB S27 10y is now trading 42bps above ITXEB S27 5y. It is hard to feel any sense of urgency to hedge risk related to the French elections – the first round is 3 weeks away – nor any real concerns around Brexit which was officially launched on Wednesday. The only discordant factor was iTraxx Financial Senior, which seems to have found a floor at 89bps where it finished the week.