24 April 2015 by lberuti
The market has been nervous over the last few weeks, as a resolution of the standoff between Greece and its creditors does not seem any closer than a fortnight ago. This lack of progress fuelled the underperformance of European credits compared with their US counterparts. European Financial entities were put under particular pressure, and they formed the worst performing group. In the above grapple, they are the red pins. But if it obvious that all the heads point right indicating a widening of the risk premia over the last month across the board, they also point up. That means that short dated risk premia have not moved faster than 5 year risk premia. When credit curves flatten in a widening environment, it is a sign of stress. It is clearly not the case at the moment, even on the most exposed compartment of the credit market. So far, everyone seems to consider that a few bumps may lie ahead, but that, in the end, everything will be all right.