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Cool As A Cucumber

09 December 2015 by lberuti

Over the last few sessions, credit indices have been on a widening path. The ECB meeting and the following press conference last Thursday signalled the end of the move tighter that we saw since early October. Since then, Emerging markets and commodities have taken centre stage again, and they have meaningfully impacted a few credits. To name a few, in the basic materials sector for instance, the 5 year risk premia of Anglo American, Mittal, Glencore are wider by 150 to 200bps since early December, and in the consumer sector Rallye and Casino saw their 5 year CDS widened by the same amount. To spice things up Abengoa and Norske Skogindustrier are on the verge of default. One could reasonably assume that investors have more than enough reasons to worry about the credit market. But they actually appear to be sanguine about the whole situation and are comfortable with their long risk positions on indices (which are still at record high level according to DTCC). Therefore credit indices are not moving any faster than what is implied by their constituents and bases (difference between an index quoted price and its theoretical value) are still resolutely negative. If a reach for index protection is due to happen before Christmas, it has certainly not begun.