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Back To Square 1

15 August 2014 by HCM

People who are back from holidays and have left their office at the very end of July will find on Monday the credit market almost exactly where they left it. But it would be difficult to argue that nothing has changed. During the last 3 weeks, indices moves have been quite brutal, as spreads tightened from the wides as viciously as they widened on the way out. During the move wider, investors had a glimpse of what might lay ahead when tougher times arrive. On many instruments, the liquidity is questionable to say the least, and was nowhere near what was needed for people to sell their assets orderly, particularly on deeply subordinated papers. So far the market has taken comfort in the optically low level of leverage used across the board, but the mini crash made clear for everybody that when the leverage is embedded in the instruments you hold it does not make that much difference.