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All Bets Are Off

23 June 2016 by lberuti

No one will be surprised to hear that today was a rather illiquid session. Investors had plenty of time since the beginning of week to adjust their portfolio and none of them really wanted to wait for the last minute to square positions. Nevertheless, it was a positive session for risk across the board. After a 2-day pause, credit indices resumed their march tighter and single name risk premia followed suit. All risky assets, from foreign exchange to equities, including interest rate and credit, do not give any chance of Brexit to come on top. If Bremain prevails, it is likely that moves will be contained as risk has come a long way since the mid of last week (iTraxx Main and iTraxx Crossover are respectively 16bps and 70bps off their 92bps and 394bps recent widest levels). If Brexit wins, then tomorrow will be a nasty session and people who were cautious enough to buy downside protection through options (even with far out of the money strikes, as expectations are for iTraxx Main to open north of 100bps in the event of “leave” prevailing) will be massively rewarded.