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05 December 2016 by lberuti

When they came into the office this morning, market makers tried to push credit indices wider on the back of the large “NO” win in the Italian referendum over the week-end. iTraxx Main (ITXEB) and iTraxx Financial Senior (ITXES) opened 3.5bps wider at 81bps and 112bps respectively. But there was no follow through whatsoever and within a couple of hours, the market was back to unchanged. Even though the pattern was quite similar to what happened post Brexit and after the US election, it left quite a few scratching their head, wondering to what extend being certain of a bad event is better than the uncertainty around it. At the end of the day, all credit indices did not follow the same path though. ITXEB closed almost unchanged at 77.5bps, iTraxx Crossover (ITXEX) closed 5bps tighter at 326.5bps, but ITXES closed 2.5bps wider at 107.5bps. The resignation of Mr Renzi will certainly make the recapitalisation of Italian banks all the more complicated and their risk premia understandably moved wider. In fact, investors never expected this exercise to be a walk in the park, and the trend we witnessed today has been at play over the last few weeks. In a month, ITXEX has outperformed ITXES by roughly 45bps on a beta adjusted basis.