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A Brexit Foretaste?

31 May 2016 by lberuti

Today was a fairly slow session, that should be split in 2 halves though. Until mid-afternoon, credit indices felt bid for choice, but while there were definitely people willing to buy protection, none was really willing to pay-up. iTraxx Main (ITXEB) remained wrapped around 71.5bps and iTraxx Crossover (ITXEX)was wrapped around 308bps. Then the results of a two UK referendum polls were released. Both shown the “leave” camp regaining the lead over the “stay” camp (one conducted on the phone predicted a 45%-42% results, and another conducted online predicted a 47%-44%). That triggered a knee jerk reaction from ITXEB, which went a couple of basis points wider to finish the session at 73bps (2.5bps wider on the day) and was the clear underperformer of the day (CDX IG in the US was only 0.5bps wider at 76.75bps). It gave us some insight into how credit indices will trade over the forthcoming weeks on this type of noise. If the “leave” camp looks like it is going to win as it did today, then ITXEX will underperform CDXIG, ITXES (iTraxx Financial Senior) will underperform ITXEB, and ITXEX will be the most resilient index.