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Brexit Complacency No More

13 June 2016 by lberuti

The market was weak from the word “go” this morning, and iTraxx Main (ITXEB) reached 81bps after a couple of hours of trading, dragged wider by the financial sector which suffered from more polls indicating that the “leave” camp may come on top in the UK referendum regarding their EU membership. A turnaround appeared to be in the cards as there was not any follow through on protection buying when the US came in and ITXEB went back to 80bps. But during the last part of the session, renewed weakness among UK banks sent ITXEB to new recent wides at 82.25bps where it eventually closed. It seems that investors are reassessing what the possible impact of the 23rd June vote could be. A “stay” scenario was always expected to send ITXEB back to 65bps and that has not changed. But many now think that a “leave” scenario could see ITXEB trades towards 100bps when 85bps was considered the upper bound previously.