07 December 2020 by jbchevrel
Brexit dominated price action today in Europe. UK financial CDS started picking up on the back of the weaker pound and outperforming Gilts. Senior Hold Co CDS widened by +3/+4 on the day while subordinated Hold Co CDS widened by +6/+9. In insurance senior CDS space, UK names lagged as well, with Aviva +3 Prudential +3. Corporate CDS as well, but to a lesser extent: BT +2.5 TSCO +2.5. The pound has lost roughly 1% against reserve currencies and 10y Gilts outperformed Bunds and USTs by 3bp. This is as it became clearer to the market that the conditions for a Brexit deal are not there yet. The new deadline (we have all lost count) has been set to Wednesday by the EU. Coveney shared that no progress had been made over the past couple of days of talks. Some ‘new’ issues also landed on the fishing chapter as well, apparently. Coveney also said that the mood on the EU side had shifted toward preparing for a no-trade-deal outcome at the end of the transition period. That is not the base case priced in by the market, but it is fair to say that this scenario is getting some credit. Just now, news that PM Johnson will meet EC Von der Leyen in person has taken the pound slightly higher. This will seemingly happen in the next few days, so it sounds like the Wednesday deadline is (already) irrelevant.