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Random Walk Or Drift Wider?

02 August 2016 by lberuti

Since mid-July, the price action on credit indices has been pretty benign and it says it all that today’s move on iTraxx Main (+3.5bps) has been the biggest over that period. During the last 9 sessions though, it seems that the credit market is edging a bit wider in the US and in Europe alike. It all feels a bit like “déjà vu”. Europe has to deal with renewed weakness in the banking sector, where long risk positions were unwound following the stress test results. This weakness was confirmed today by the profit warning of CMZB ( Commerzbank AG ) and rumours that UCGIM ( UniCredit SpA ) could need an additional €5.5Bln capital requirement to cover the gap resulting from repricing its non-performing loans portfolio leading to a potentially crowded round of capital raising comes September. The US have to deal with their heavy exposure to the energy sector, with oil dipping below $40 per barrel. We will need more than a few days to know whether that risk premia’s move off their tightest levels of the year can be put down to thin summer liquidity and is just a blip, or if it is the beginning of a more serious repricing.