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Normal Service Resumes

09 March 2018 by lberuti

The few days during which fear gripped the market after the debacle of the short volatility funds are a distant memory. The economic numbers that came out in the US were music to equity investors’ ears: a big job number and a slight decline in wage growth. They did not think twice and sent the S&P roaring higher. European equities had a more muted reaction, but credit did not hesitate and credit indices took a resolute leg tighter on both sides of the Atlantic. iTraxx Main closed 2bps tighter at 50bps, iTraxx Crossover 5bps tighter at 254bps, CDX IG 2bps tighter at 55bps et CDX HY 11bps tighter at 330bps. Implied volatility was for sale – it has already been the case for a few sessions in optionland to be honest - and investors holding short risk positions threw in the towel as we broke through what had been a solid trading range recently. It could pave the way for further spread tightening, especially as we head into the roll which appear to play a major role in people’s mind at the moment. Looking ahead, there does not appear to be much on the calendar in terms of risk event. It could give the market some more room to tighten and shrug off the bad memories from February.