21 April 2017 by lberuti
No liquidity, no trade. That pretty much sums up the day on the credit market. Variations were minimal intraday or on a close to close basis. That was true for indices and their constituents alike, even if on balance risk premia were indicated a tad tighter for choice. Instead of trading, people spent most of the day trying to assess where the market could open on Monday based on the outcome of the first round of the French presidential election. Using the probabilities they affect to each of these outcomes, the general conclusion was that 75ish bps is probably the correct level for iTraxx Main (ITXEB) on the eve of the ballot. If people use probabilities that appear to make sense, it seems that the market behaviour after the most recent shock election results and the speed at which risky assets came back to their original levels is impacting their expectations for next Monday’s opening levels. In my humble opinion, the market reaction to a second round Le Pen / Melenchon face-off would be far worse than the 100bps open for ITXEB most people see. Even if we have all been lamenting the low realized volatility of the last twelve months, let’s hope this particular guesstimate won’t be tested.