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A Day Of Two Halves

07 January 2016 by lberuti

Another poor session in China (although a very short one as it lasted a full 14 minutes before circuit breakers stopped trading for the day following a 7% rout) led to a weak opening in credit. Poor sentiment dominated all morning and iTraxx Main and iTraxx Crossover were stuck at 85bps and 350bps respectively. But once the US came in, new long risk positions were set via indices directly and via naked options. Combined with the news that China decided to suspend the stock circuit breaker rule, which has been singled out as one of the main factors behind the recent catastrophic equity trading sessions, it triggered a wave of short covering that brought credit indices to unchanged levels compared with yesterday’s close. Despite drifting wider towards the close, the tone was better at the end of the day. Well, that was true for indices, but once again appetite for single name protection ended unabated and indices’ fair values are still in excess of 10% wider than their quoted values.