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What A Run!

19 December 2019 by lberuti

2019 began with a lot of uncertainties, and that was pretty obvious from the levels of credit risk premia. They were far from historically stressed levels, but the correction of the last quarter of 2018 sent the 5-year investment grade benchmarks in Europe and in the US towards 90bps, highlighting macro concerns of most investors, from a raging trade war between China and the US to a never-ending Brexit psychodrama. Progressively most of these worries eased. It culminated this month with the UK general election paving the way for an eluding Brexit deal in early 2020 and a phase 1 agreement between China and the US. Before that, markets got a little help from central bankers. Remember that mid-December 2018 the Fed dots were still forecasting 3 hikes over the following 18 months while the Fed eventually delivered three cuts (!!). The ECB announced CSPP2 to make sure Mr Draghi was going out with a bang. And it all contributed to halving in average the level of credit risk premia. iTraxx Main and CDX IG closed tonight at 44.5bps and 46bps respectively. This is roughly where they traded in early 2018 when they reached their tightest post Great Financial Crisis levels. The market is now priced for perfection, and if anything were to question this situation and the investors’ positioning, its reaction is anybody’s guess. On which note, the whole team of Datagrapple wishes you a very happy festive season! We shall resume our blog next year.