04 November 2020 by jbchevrel
Biden looks highly likely (>80% according to bookies) to become the 46th President of the US. Some states are still not totally certain (PA WI MI NV GA NC). MI and WI are super close. Recounts are on the cards. There are not many paths to victory for President Trump, optically. 9 ways to win 56. Biden has got 15 ways to win 32. What is for sure: it was not the Blue Wave that some had predicted! Currently confirmed are 48 Rep Senate seats vs 47 Dem. The Democrats also lost some in the House. That outcome seems to pleased Equity markets and Credit markets. A lot! Along with soaring stocks (~+8% week to date), CDX HY tightened by -26bp today. CDX HY has rallied +1.5pt intraday and +2.5pt since last Friday’s low. Oil-linked CDS were well offered today. Crude is at the highs (WTI 39.1 – a +16.5% move since Monday early morning low). That oil move was reinforced by lower USD and bigger-than-expected draw in the DoE inventory data. CDX EM index was tighter -10bp coming back close to October tight! The Biden outcome was always expected to be positive for EM as an asset class, and that is confirmed here! The USD came off across the board (CNH +0.4% RUB +2% ZAR +1.5%) after USD previously soared +2/+3% during the night (when Trump was seen 80% in the bookies) vs ZAR MXN etc. CDX EM fair value is tighter by 'just' 6bp, outpaced by the index, as it often is. Russia 5y CDS -10bp outperformed in this move, given its beta. This is ~10% of the spread. That move sort of contradicts the expectations that Sanctions against Russia are more likely under Biden than under Trump. Russia CDS seems to overlook this risk for now, along with RUB (+2%). Russia caps a -13bp week run, outperforming SOAF (-16bp).