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In Mario We Trust

07 December 2016 by lberuti

It was a strong day right from the start, extending the trend that emerged after the Italian referendum. Since the wides reached early on Monday, iTraxx Main (ITXEB) has tightened by 8bps (it closed at 74bps tonight), iTraxx Crossover (ITXEX) by 25bps (it closed at 315.5bps tonight which is the series tights) and iTraxx Financial Senior by 13bps (it closed at 99.5bps tonight). One would have expected the move to happen after the ECB meeting which is taking place tomorrow. But even if market participants see it as the last chance for some volatility in 2016, it looks as though right now they are pricing a very benign outcome. It is also fairly obvious from the option market where implied volatility came down aggressively over the last few days. For ITXEB, options are pricing a total move of less than 5bps until the December expiry (which takes place in 2-week time), going into an important ECB meeting – during which investors expect to get some clues regarding the direction of the purchase program in 2017 - while previous ones have been the drivers of the biggest moves in credit so far this year.