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Who Is On Top?

17 November 2016 by lberuti

Since the election of Mr Trump a week ago, some risky assets have experienced some severe repricing. Most notably, interest rates have been pushed much higher, triggering some weakness in the corporate cash market. In a unexpected twist, some of the names which had benefitted the most from the ECB Corporate Sector Purchase Program and were trading at tighter spreads than their respective sovereign have been the most affected. Peripheral utilities are among the biggest casualties of the recent corporate bonds sell off and it has eventually fed through the CDS market. Peripheral financials have also fared pretty badly during that period. At the same time, the US energy and consumer cyclical sectors have been the big outperformers, as they are expected to make the most of a pick-up in growth which could result from some of Mr Trump announced economic measures. So much so that the relationship between iTraxx Main (ITXEB) and CDX IG has inverted. While ITXEB was trading 5bps inside CDX IG at the beginning of the month (75bps vs 80bps), ITXEB is now trading 5bps wider.