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Compression In The Making

03 October 2016 by lberuti

Compression is one of the themes that developed in the European credit market recently. Last week it had to do with financials which have underperformed the rest of the credit market following the fuss made around the damages that the US department of Justice could impose on some European banks in their case regarding the misselling of asset backed securities. Today the trend was fuelled on the one hand by UK retailers – most of which are included in iTraxx Main - which saw their risk risk premia driven wider after PM May declared over the week-end that article 50 should be triggered by the end of March 2017 and increased the odds of a “hard” Brexit leading to renewed Sterling weakness. On the other hand, CONVAT (ConvaTec Healthcare E S.A.), which is included in iTraxx Crossover, was 119bps tighter after the company said it plans to raise $1.8Bln in London’s biggest initial public offering this year. Meanwhile, the broader credit market was fairly dull today and indices traded sideways as investors were digesting the late day rally which took place on Friday.