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When Is Far Far Enough?

01 August 2017 by lberuti

Credit experienced another positive session today, with all indices trading near the tightest levels of the year – which are effectively the tightest levels of the last 3 years – reached a few sessions ago. The market is benefitting from the light volumes, low volatility environment that investors foresee in August. If such scenario materialises, why would they want to give away some carry and pay for protection. The performance of credit overall was underpinned by the tightening of the miners and basic material sector. BHP Billiton, Mittal, Glencore and Anglo American all saw their 5-year risk premia reach multiyear low after commodity prices continue their surge on optimism the global economy is keeping its momentum. But down at these tighter levels, after what looked like one way traffic over the last 3 months – since early May, Mittal is 120bps tighter at 166bps, Glencore 70bps tighter at 121bps and Anglo 80bps tighter at 119bps - some 2-way flow is developing. While some investors who were holding short risk positions are throwing the towels, others who were riding the tightening wave are taking chips off the table.