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Quantum Leaps

31 July 2014 by HCM

End of June, the market discovered BES (Banco Espirito Santo) issues. End of July, the market got a full picture of the losses (Angola risks remaining in the shadow) and BES equity is 50% down. This weighted a lot on the European credit market, adding the Argentina default, a rising view on stretched valuations and the CDS market gapped today by 3 sigma. We were used to such gaps in the past and maybe we thought this time was over. For such a valuation shift, the CDS market is not moving tick by tick but it is moving bid-offer by bid-offer, implying jumps and gaps on each CDS and even on indices.