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That Was Weird

18 February 2016 by lberuti

The close in the US yesterday was strong with new issues behaving very well and clients looking to add in the secondary market on the recent deals by Apple, Comcast or IBM. In Asia as well, the overnight session was supportive and credit indices closed a couple of bps tighter. So it all started with a constructive tone for iTraxx indices in Europe. Itraxx Main was wrapped around 106.5bps for the best part of the day and iTraxx Crossover wrapped around 425bps. The traditional high beta sectors like Autos or Consumers were all in the green, and AALLN ( Anglo American Plc ) contributed to the feel good factor by announcing a buyback of some of their bonds sending its 5 year risk premium more than 50bps tighter at 910bps. But an hour before the close, a few protection buyers emerged in the market, particularly on financials, and the sentiment turned very quickly. Risk appetite disappeared and liquidity became very thin. iTraxx Financials Senior traded up from 110bps to 120bps with no volume going through. It definitely raises questions about the recent leg tighter of the risk premia and the next few sessions will tell whether the rally was merely down to short covering or if a genuine appetite for risk is back in the market.