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Brexit vs CSPP

06 June 2016 by lberuti

It was difficult today to reconcile the moves in credit with the moves in other risky assets, particularly with equities. While the latter remained in a relatively tight range, credit indices – and more specifically iTraxx Main (ITXEB) – experienced large swings. The session began on a weak note after more Brexit polls shown the “leave” camp still in the lead over the week-end, and ITXEB traded as wide as 77.5bps. That move did not last long though. With the start of the CSPP due in a couple of days, investors decided to fade the widening and begun selling protection on ITXEB. That trend progressively gained traction and ITXEB finished at 73bps, only a couple of bps away from its recent tights. Brexit fears did not leave the market unscathed though. While all credit indices saw their risk premia closed tighter on the day, iTraxx Financials underperformed as UK banks failed to participate in the rally. Among the 24 corporates included in ITXEB which closed wider, 11 are UK based companies.