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Waiting For The ECB

29 May 2014 by HCM

This grapple illustrates the 2 main trends which have been at work since the beginning of the week. First compression was back with a vengeance. The results of the European elections were taken quite positively by the market, especially on the back of the support that Mr Renzi got in Italy. That enabled BTPs to make back whatever ground they lost during last week’s wobbles and peripheral names got a boost on the back of that. iTraxx Crossover which includes a good number of them is unsurprisingly the best performer of the last few sessions. Secondly, expectations are building that the ECB will next deliver a rate cut and some unconventional measures. Hence, investors have positioned themselves to benefit from an outperformance of financials names. They have options more than indices directly, but the subsequent dealer hedging activity led to the outperformance of iTraxx Financial (Senior and Sub) compared with iTraxx Main.