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Will They? Or Won’t They?

29 May 2015 by lberuti

Sometimes markets make you sound like a broken record. The week that just ended could be easily summed up: will they or won’t they? Whether Greece will be able to come up with the money to pay the IMF on the 5th June drove every single move of the credit market. We ended on a fairly weak note as the rhetoric from the European creditors of Greece have grown more cautious as the week wore on. Unsurprisingly Greek officials kept repeating that a positive outcome is close, but no one would expect anything else ahead of a long week-end, during which history tells us that tough decisions tend to be made. But the fact that the market remained relatively well behaved is most likely due to the defensive positioning of investors which have been using credit indices as a macro hedge. DTCC statistics released on Wednesday showed that the net short risk positions on iTraxx Financials Senior among clients were at their highest since May 2014. They were happy to take some chips off the table and as soon as the recent wides were reached, profit takers were there to cap moves. Otherwise, it would be difficult to explain why iTraxx Financials outperformed iTraxx Main during a week where the investment grade benchmark widened by 4bps to 65.25bps driven by worries about Greece.