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Kudos To Mr Draghi

30 October 2017 by lberuti

“Kudos to Mr Draghi” is probably what many investors are tempted to say. At least those who are long risky assets around the world, but most particularly in Europe. Markets had been a bit hesitant ahead of Thursday, as the way the ECB would handle the monetary stimulus reduction was not a foregone conclusion. While Mr Draghi said the ECB will reduce the size of its monthly bond purchases (to €30bln for another 9 months beginning next January from the current €60Bln), much emphasis was put on the need to tread carefully. He maintained his pledge to continue buying beyond the current deadline and/or to increase the size of the program if needed. A very warm welcome was paid to what was some called “QE Infinity”. The risk premia of both CDX IG and iTraxx Main (ITXEB), the American and European investment grade credit benchmarks, rallied since the 26th October. But the most striking is the outperformance of ITXEB compared with its US equivalent. From being 3bps wider on the 20th October, ITXEB is now today 2bps tighter (at 51bps vs 53 for CDX IG).