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Boring? No More

13 January 2016 by lberuti

Oil has been one of the main drivers of risk premia over the last 9 months. It explains to a large extent the underperformance of US indices compared with their European equivalents, as both CDXHY and CDXIG include an important portion on high beta energy names. Since the beginning of the year, the oil rout has only got worse, and traditionally low beta names are feeling the heat in Europe. Today for instance, even when oil was off its lowest levels (it went up to $32 before going back to $30.5 at the end of the session) and Eurostoxx up 1.75% at the intraday highs, the risk premia of energy names (both oil and non-oil) were noticeably weaker and at the end of the session they make up the bulk of the worst performing names. After a torrid run since the first of January, it is quite striking to see that the likes of RDSA ( Royal Dutch Shell Plc ), STL ( Statoil ) or TOTAL ( Total SA ) are now trading at levels that were not even (or hardly) reached during the great financial crisis of 2008. Boring names will soon be a thing of the past!