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A 35% Rally Deserves a Break

10 August 2016 by pdonnat

The iTraxx Europe Series 25 bounced back today from its yearly low from 65bps to 68bps. Real money investors are taking some chips off the table. The latest statistics published by DTCC are showing a reduction of clients’ long risk positions in credit indices over the last week. The European investment grade index rally is having a break after a 35% rally from its 100 spike at the end of June as you can see on the impressive attached grapple. Being long risk at current level is offering a limited upside. However, the credit cash market is still rock solid. The iShares Core GBP Corporate ETF (SLXX) was up 0.5% again today, 18% this year. If rates are going higher spreads are expected to tighten and vice versa if rates are going lower spread are expected to widen. Any weakness of synthetic products would be awkward in the current environment.