21 May 2018 by lberuti
Once again, it was all about Italy today. The credit market tried to open unchanged as investors cheered the China/US tariffs headlines published over the week-end, but as soon as the BTP started to sell off against Bund, there was a flurry of protection buyers. Index risk premia started to move wider, but the move never felt panicky and there were healthy two-way flows during the whole session. The widening accelerated in the final hour of trading as the BTP rout took it 21bps wider versus Bund. The relative move between the two govies over the last week is 57bps and the yield differential now stands at 187bps. Over the same period, iTraxx Main (ITXEB) is 5.5bps wider, iTraxx Crossover (ITXEX) only 13.5bps wider, iTraxx Financial Senior (ITXES) 11bps wider and iTraxx Financial Subordinated (ITXEU) 24bps wider. The price action was similar today, ITXES and ITXEU underperformed ITXEB, while ITXEX outperformed. The risk premium differential between ITXES and ITXEB now stands at 9bps, which is the largest it has been since the run-up to the French election.