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Heading Towards A Minsky Moment?

19 October 2017 by lberuti

After the option expiry that took place yesterday, credit indices were once again “free to trade”. After being pinned at 55bps during a couple of days, iTraxx Main was on the move today after some macro news weighted on investors’ sentiment. In the morning, the Spanish government announced that they will move forward with the process of suspending the powers of the Catalan administration after regional President Carlos Puigdemont refused to shelve his claim to independence. It has to be said that it was the base-case scenario of many investors, as evidenced by the resilience of Spanish government bonds which only widened a few basis points over bunds. So, even it contributed to credit indices widening, the main cause was probably to be found in the comment regarding leverage ratios and assets’valuation made by PBOC governor’s at an event on the side-lines of the 19th Communist Party Congress in Beijing. "If we’re too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a Minsky Moment. That’s what we should particularly defend against." It seems it was enough to dent investors’ confidence a little on the 30th anniversary of Black Monday.