07 June 2016 by lberuti
Over the last couple of months, much has been said regarding the CSPP which will begin effectively tomorrow and the effect that it could have (or already had) on risk premia in Europe. Effectively, despite the best effort of the “leave” camp in the UK to introduce growing uncertainty regarding the final outcome of the Brexit referendum, risk premia in Europe have been very well behaved. The best example is iTraxx Main Series 25 (ITXEB25), which has stayed within a 10bps range since the 10th April, and is currently trading close to the tighter end. But what is striking in the above grapple is that CDX IG Series 26, its US counterpart, which traded 6bps wider than ITXEB25 only a few sessions ago, has now closed the gap that separated the two credit indices. FED Chair Yellen has been successful in her balancing act so far. After saying 10 days ago at Harvard University that a rate hike might be appropriate in the coming months, she carefully avoided any mention of timing yesterday, insisting instead that any further rate increase will be gradual, as well as trying not to read too much into the poor set of employment data which spooked the market on Friday.