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Deal Or No Deal

21 March 2019 by jbchevrel

Today PM May was in Brussels and formally requested a one-off 3-month Brexit delay. But EU leaders want a shorter cut-off than that. And they made it clear that this was contingent to May getting her deal passed in Parliament. This development, days before the March 29th deadline, got echo in the market. At a macro level, the spread iTraxx Main and CDX IG got back positive and wider, up 3.5bp today, going from -1bp to +2.5bp. The spread between their respective fair values also came back in positive territory (i.e. Europe wider), at +0.5bp. The single-name performance dispersion displayed demonstrates the UK risk underperformance further. Indeed, UK names widened the most (ITVLN +13 bank holdcos +10) in the iTraxx Main. In parallel, in other markets, Gilts rallied aggressively to 1.06% on the 10-year point, the lowest yield since Q3-2017, and in FX, the 1-month ATM GBP$ implied vol picked up to 13.5, a level last seen in December.