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Happy New Year? Only If You Were Short!

04 January 2016 by lberuti

First, we would like to wish everybody a happy new year! As far as markets were concerned, they did certainly not begin 2016 the way most were anticipating and certainly not the way most were expecting. Despite the stabilisation in oil, the fact that trading in Chinese equities was halted after they reached their limit down spooked investors when they arrived in the office, and all risky assets started on the back foot. Credit was a bit more relaxed than equities, but iTraxx Main and iTraxx Crossover closed 3.75bps wider at 81.25bps and 19bps wider at 334.5bps respectively, while CDXIG closed 2.5bps wider at 91.5bps and CDX High Yield closed 14bps wider at 491bps. To a large extend, it merely erased the performance of the last few days of 2015 during which credit indices saw their risk premia tighten in very light volumes. One can also argue that with bases at historically negative levels across the board (the risk premia of credit indices are currently around 10% tighter than their theoretical values), there is still room for further downside. But that is probably not what most people want to hear.