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Climate Change?

11 December 2015 by lberuti

It is difficult to point to a single catalyst as far as today’s sell-off is concerned. It was certainly broad-based and affected all risky assets. In creditland, as you can see on the above Grapple, hardly any name saw their risk premium close tighter today. The repricing was most severe in the US where the fair value of CDXIG25 widened by almost 7bps to close at 106.7bps. There was no game changing news, and the most affected sectors were the sectors which already suffered during the previous few sessions (commodities and EM related names). Poor liquidity definitely played a part, particularly in the cash market which was certainly not helped by the news that an $800mln mutual fund which is liquidating its holdings had to activate gates provision to be able to do so in an orderly fashion. Options on credit indices provided some respite in the widening when iTraxx Main approached 80bps and iTraxx Crossover approached 325bps as some deltas were adjusted, but that was only temporary, and risk premia are closing at their widest level of the day across the board (81.5bps on Main and 340.5bps on Crossover).