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Don’t Know What To Do With It? Sell It To Mario!

10 March 2016 by lberuti

Those who expected the ECB to disappoint the market today were left… disappointed, at first anyway. Mr Draghi announced a set of measures that matched most of people expectations (all rates were lowered including the ECB deposit facility rate which was brought from -0.3% to -0.4%) and effectively surpassed them when he announced that the Central Bank purchase program will be extended to corporate bonds. It will begin to buy investment grade euro-denominated bonds issued by companies outside the banking industry in a month time. The news sent iTraxx Main (ITXEB) 12bps tighter on the day, when it traded down to 80bps. The European investment grade benchmark massively outperformed iTraxx Crossover (ITXEX), its high yield equivalent. At the close ITXEB was 7.5bps tighter at 84bps while ITXEX was 19bps tighter at 358bps, when the usual ratio of their respective moves is closer to 4. Even though credit indices closed off the tights, they experienced their best session since last summer. The situation were quite different for stocks which, after an initial very positive reaction (+4%) to the rates reduction, were left demanding for more after Mr Draghi suggested during its press conference that the bottom might have been reached on rates. Equities eventually finished the day almost 2% down, i.e. 6% off their highs.