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24 April 2017 by lberuti

The market breathed a huge sigh of relief this morning, after the French presidential election failed to deliver any shock over the week-end. Make no mistake though, viewed over a longer-term horizon, it is another shockwave as the two mainstream parties’ candidates have been eliminated and the general elections that will take place in a couple of months will no doubt bring their lot of uncertainties. If no majority emerges in Parliament, the task of the future President – Mr Macron as it stands at the moment, unless any unexpected twist turns things on their head over the two coming weeks– will be made extremely difficult and reforming the country will be as tricky as ever. But today was all about celebrating the very likely election of a pro-Europe candidate. It seems that investors were positioned fairly defensively – this was obvious from credit index option prices last week as the implied volatility of out of the money downside protection was far more expensive than at the money downside protection, but less so on credit indices themselves – and the risk premia of credit indices reaped tighter. iTraxx Main opened 4.5bps tighter at 70bps and closed a further 2bps tighter at 68bps; iTraxx Crossover closed 18.5bps tighter at 272bps; itraxx Financials Senior closed 12.5bps at 78bps and iTraxx Financials Subordinated 27.5bps at 175bps.