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Tapered Before It Ends?

04 October 2016 by lberuti

Despite the return of German investors after a day’s holiday, until the very end, the credit market was experiencing a very quiet session. We had to wait until the last hour of trading to get a bit of excitement, when headlines appeared announcing that the ECB would be considering gradually winding down bond purchases before the conclusion of quantitative easing. The current date of the program’s end is less than six months away - March 2017 -, and an informal consensus among policy makers would have emerged to taper asset purchases by €10Bln a month. Even though this risk had been flagged by some analysts, investors were probably underestimating it ahead of the ECB meetings in October (20th) and December (8th). The news led to a late blip in European credit indices, particularly iTraxx Main (ITXEB) which jumped 2bps to 75bps, while it had spent the whole session in a narrow 73bps/74bps range. After the recent weakness in the European financial sector, that was enough to close the gap between ITXEB and CDXIG, its US equivalent. While CDXIG was trading 7bps wider than ITXEB a couple of weeks ago, just after the roll, they are now trading at the same level.