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Spot The Odd One Out

31 May 2018 by lberuti

Today the theme in the credit market was clearly about a relief rally. The price action was choppy, but everything Italian had a stellar performance – not if you look at them on a 3-day horizon though! -, particularly financials, and it pushed the whole credit complex tighter. So much attention had been paid recently to the tribulations of Mr Mattarella, that investors almost forget about stories that kept them on their toes a few weeks or a few months ago. They were certainly not expecting to learn that DB’s (Deutsche Bank AG) US business had been added by the Federal Deposit Insurance Corporation to a group of troubled lenders they closely monitor. The decision means they view DB’s federally insured US business as having “financial, operational or managerial weaknesses that threaten its continued financial viability”. DB’s equity tumbled as the news compounds the challenges faced by the German lender, which was told in March by the Fed that it must urgently fix lapses described in a series of settlements over the past few years and lost 7%. 5-year CDS contract referencing its senior debt gapped 35bps to 190bps, while 5-year CDS referencing its subordinated debt touched 400bps (+75bps on the day).