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Catch Me If You Can

01 February 2016 by lberuti

Looking at the above grapple, it is not difficult to spot the odd one out. Over a one week horizon European indices are little changed… except iTraxx Financials Subordinated (ITXEU). It has widened by 20bps to 213bps (at one stage it was trading at 220bps during today’s session before a little snap back at the close). Switching out of corporate short risk positions into short risk Financials is a trend gaining momentum. Even if commodity and energy related names still appear sometimes vulnerable, they appear to have found a clearing level and two way flows have now developed as some investors are looking to book profits on a trade which has performed well since the beginning of the year. The same cannot be said for Financials. The repricing has just begun, and getting some short risk exposure to Italian and UK banks and to DB is seen as an interesting opportunity. No one is willing to take the other side of the trade at present, and we could see ITXEU running away from the pack even more in the near future.