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Brexit is Back

15 May 2020 by jbchevrel

Today the Brexit theme came back in European CDS space. We experienced the underperformance of everything UK, especially in financials. In both snr and sub space, RBS group, Barclays PLC, Aviva and Lloyds Group were the clear underperformers. Senior CDS widened by +4/+7 and Subordinated CDS widened by +7/+12, in a broader market flat on the day. Indeed, SnrFin index was wider just +1 and SubFin just +2. In FX space, the GBP notably underperformed as well, although that underperformance relative to reserve currencies had started before today. Today was the last day of this round of the virtual UK/EU negotiation. Mr Frost summarized ‘little progress has been made’. Mr Frost said he hopes for a change in EU approach before next round (starting Jun 1). The UK government seems determined to keep ‘tough’ stance, so once again, it looks like it is going to get worse before it gets better. The occasion to remember that the June deadline is still in place, with transition period theoretically ending with this eventful 2020 year. In corporate space as well, UK names notably under-performed. It was especially the case for Next PLC (+18) and Rolls-Royce PLC (+20) although both of them, especially the later, have been under-performing the broader Euro IG CDS complex for a few sessions. Rolls-Royce PLC 5y CDS closes at a new all-time high above 650bp.