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All Things Considered, No Panic… Yet

29 May 2018 by lberuti

The credit market was all about Italy again, and more precisely about the spread between the yield of BTP and Bund. Looking at the market yesterday morning, everything seemed fine: after 5-Star and Lega were not allowed to form a government, BTPs opened some 15bps tighter. But that did not last long, once people realised a technocratic government is not necessary the most likely outcome. Instead snap elections could be held pretty swiftly, and their results is anybody’s guess. We walked in this morning to a 30bps increase in BTP’s yield compared to Bund’s, which very rapidly turned into a +115bps gap. Credit indices duly followed, but if moves were big, considering the carnage on Italian interest rates, one could argue that things were kept under control. Fears for the Euro project are starting to propagate, but the market reaction has been fairly orderly and two way flows have developed quite rapidly, at least on the most liquid instruments, ie credit indices and options on credit indices. Volumes traded today were way above their daily average, as you can see If you go to OTC Streaming.