01 May 2014 by HCM
A wide array of assets are now trading near their post crisis high, and in some cases they are close to historical highs (US equities among others). They have been bouncing off those levels a few times, and credit is not different. The 5 year risk premium of investment grade names, as represented by the iTraxx Europe Main (ITXEB21), is testing the 70 level for the third time in a month, and investors are wondering whether we are at a crossroad. Is the market going to fail to clear this level and go back its previous equilibrium range of 75-85bps? Or is the market going to establish new tights and head decisively towards 60bps? Chances are that credit will stay close to current levels, within a tight 68-73bps range, until the numerous bank holidays are behind us.