13 November 2018 by lberuti
It looked like another day in the office when investors arrived this morning. Compared with previous sessions, the same themes were at play. The market as a whole was weak. The oil sector was under pressure because of the uninterrupted slide of crude – it was down another 4% today – and British financial institutions suffered from the usual mumbo-jumbo about Brexit negotiations, where “progress were being made” but “discussions were still ongoing” and a “deal was not there yet”. But towards the end of the afternoon, a number of news outlets reported that a “breakthrough in the Brexit negotiations” had been made triggering a bounce of the British Pound. European credit indices actually followed and tightened across the board as a wave of short covering hit the market. If UK banks felt some kind of relief and were indicated tighter, most other sectors proved stickier and a number of risk premia were left unchanged, opening the way for some arbitrages to be executed, where people were able to buy index protection and sell single reference CDS for a profit. iTraxx Main finished the day 23cts more expensive than its fair value. Its risk premium has not been that tight compared to its constituents since late 2016.