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Financial Led Consolidation

20 May 2014 by HCM

For a while, protection on financial companies was just impossible to sell. Investors’ sentiment was unanimously positive, and, with European QE in sight, it seemed that buying CDS was akin to throwing money out of the window. But last week, sentiment somehow turned on peripheral sovereigns with growth faltering in Europe. Italy, Spain and Portugal government bonds reversed course, shaking market participants’ confidence. That in turn hurt banks from the periphery, while banks from the core were impacted by noise around possible fine and/or actual settlement with the US authorities. The risk premium of BNP (BNP Paribas SA) for instance has increased by 14bps to 76bps during the last 5 trading sessions. So far it does not look anything more than a healthy consolidation, but a few assets are reaching technical levels. For the sake of long only investors, it would be best if they hold.