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06 February 2017 by pdonnat

The European investment grade credit index is closing tonight 3.5 bps wider at 75bps while the US credit index is closing only 1bp wider at 65bps. The Europe/US spread has traded above 10bps, a level not seen back early 2014. Since the beginning of the year, US credit is tighter while Europe credit is wider - similar compared to the performance of the equity benchmarks. Under the surface of the credit indices divergence, credit single name protections are well offered on both side of the pond. The index fair values are only 3bps apart. Speculative positions on the divergence have increased, fuelled by the European agenda storyline and the weakness of France and Italy government bonds. The macro views are far from being reflected in the micro credit markets and the divergence will need open positions to increase higher or it will snap back sharply.