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All Bets Are Off

03 July 2015 by lberuti

With the US closed, no one was expecting a frantic day of trading. It was all about position squaring ahead of the all-important referendum on Sunday. And with the result to close to call (the latest polls are showing “yes” and “no” neck to neck at 41 to 42% each), it seemed that investors felt slightly under hedged. That led to a weak session with all European credit indices closing wider, but that also led to an underperformance of what are traditionally used as Grexit proxies. iTraxx Main (+1.75bps at 75bps) decompressed substantially compared with iTraxx Crossover (+2.375bps at 325bps when its beta to Main is above 4). iTraxx Financials Sub finished 8.5bps wider at 180bps, which was the biggest move of all. People have taken chips off the table before bets were officially off, and they are now bracing themselves for a fierce move on Monday at the open. Indeed, everyone expects a 15% spread move one way or the other.