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Decompression In The Making?

08 March 2017 by lberuti

The trend of moving mildly wider after the big squeeze last week continued once again. Softer equities in Asia initially led the weakness, but as rates began to sell off – the US 10-year traded up to 2.55% after the strong ADP numbers gave the recent trend some additional momentum -, credit indices moved another leg wider before stabilising at their widest levels of the session – 71.75bps for iTraxx Main, 285bps for iTraxx Crossover, 63bps for CDX IG and 323bps for CDX HY -. There seems to be some pain in the higher beta names, and the European High Yield complex is trading heavy in the cash space, pressured by redemptions in HY credit ETF. It translated into an orderly leak wider in credit index land with a bit of decompression thrown in. That trend looks sets to continue unless the lazy long base established in the investment grade universe due to the impending roll gets spooked and starts to rush for the exit in the event of a disappointing ECB meeting on Thursday.