13 December 2017 by lberuti
Apathy continued to reign in the credit derivatives market ahead of the central banks’ meetings today and tomorrow. Risk premia are mired at their post crisis tights on both sides of the Atlantic. While there is obviously a lot of focus on the Fed in the interest rates market leading up to the statement which will be released later today, there was not much interest in creditland on the potential implications of the US tax reform on the Fed policy, or consequences of higher dots to December 2018 than the market is currently pricing. In fact, most of the activity took place following media reports that President Sergio Mattarella will dissolve parliament by the end of the month to allow elections to be held in Italy on March 4, bringing worries about a victory of the Five Star Movement to the fore. The yield of Italian 10-year government bonds jumped 9bps compared to the yield of their German equivalent, and Italian financial institutions all saw their risk premia pushed wider. The 5-year CDS of Unicredit, Generali, Intesa and Mediobanca all ended the session weaker amid concerns about further political turbulence down the road, but it all took place in a very orderly fashion and daily variations were contained.