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Tonight Is Not Gonna Be The Big Night

14 November 2017 by lberuti

If credit traded heavy for the whole session, there was certainly panic. Indices are gradually reaching the levels that proved too much to break last time they were tested – iTraxx Crossover at 250bps is what caught investors’ eyes previously -. Once again, the weakness is driven by single reference entities, but that phenomenon is mainly true for companies that are rated non-investment grade. Both in Europe and in the US, the names with the widest risk premia were put under most pressure. As far as they were concerned, investment grade companies fared much better, particularly in Europe. If you consider EDF ( Electricite de France SA ), they said yesterday that they were cutting their 2018 earnings target in anticipation of weaker French demand, lower nuclear plants availability and a drop in so called capacity compensation in the UK – it refers to payments utilities receive for keeping generators open to cover supply gaps during peak demand-. The number revision, which follows a cut last month to the company’s 2017 forecasts, sent EDF’s stock 10% lower. By contrast, the reaction of the 5-year CDS was very muted. It widened 5bps since the beginning of the week, and closed tonight at 56bps. That is roughly half the level at which it was trading 6 month ago. Difficult to talk about stress…