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Will There Be Blood?

11 November 2016 by lberuti

Even though daily variations had been contained so far this week, intraday volatility has been huge in most risky assets since the surprise results of the US presidential election. After a demanding week, investors who came into the office this morning were expecting a fairly quiet session, as US fixed income markets were having a day off for Veterans Day. It was not really how it panned out though. After a weak overnight session in Asia, they were greeted by a spike in European interest rates, with the German 10Y rate reaching 0.345%, a whopping 7bps higher. Once the Bund settled – still roughly 3bps higher on the day -, it became a periphery and emerging markets story, with sovereigns taking another leg wider after yesterday’s already dismal performance. Italian BTPs are hitting year to date wides against Bunds - north of 200bps -, and both Spanish and French government are decompressing to Bunds as well. That contributed to a weak and volatile session in credit markets. iTraxx Main went from 75bps to 78.5bps by mid-morning, then traded back to 76bps at lunchtime, only to drift again in the afternoon when it reached 79bps. It eventually closed a tad off that level at 78bps, 3bps wider on the day. All eyes will be on the US on Monday, as people will want to know if there will be some follow through in the surge of interest rates. If they remain of their recent trajectory, there will be blood.