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In A Straight Line

05 June 2014 by HCM

Today Mr Draghi delivered his much anticipated package to prevent the euro zone from entering deflation. As expected the morning was quiet ahead of the ECB meeting, but after what can only be described as a comprehensive offer (targeted LTROs, extension of full allotment, suspension of sterilisation, depo/refi rate cut and preparation for ABS QE), credit indices shot to new tights. It is now 3 weeks that credit has been moving in a straight line, and all indices are today trading at levels not seen since the beginning of 2008. But the most striking feature of this grapple is the convergence of US and European Indices. The big difference between the 2 is the inclusion in iTraxx Main of European banks, while their US counterparts are excluded from CDX IG. The main beneficiaries of today’s decisions are clearly financial institutions and credit investors were quick to recognise that.