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Everybody Out Of The Pool!

15 October 2014 by lberuti

After a fairly uneventful morning, equities started to move aggressively down during the afternoon session. As stocks fell off a cliff and govies went moonwards, credit saw all available bids being hit on cash bonds and investors were not shy of crossing bid offers to buy protection on unwanted residual long risk positions. There was no real panic though (except for a 30 minutes spell when Barcelona Airport was rumoured to be quarantined following confirmed cases of ebola virus, a rumour that was never confirmed), and some people even saw that widening of risk premia as an opportunity to reload risk on good quality credits. That led to another round of decompression in Europe, exacerbated in Europe by the discrepancy in the initial basis to theoretical levels of iTraxx Main and iTraxx Crossover. Important technical and psychological levels have been breached on many risky assets, so bottom fishing seems a dangerous game to play at this stage. If a proper derisking period begins, higher beta names are still the most at risk, and decompression should have more legs from here.