16 October 2014 by lberuti
Today’s session was reminiscent of the wild swings the market experienced back at the pick of the sovereign crisis. It was characterised by fear much more than greed, and at some stage some indices were left without any offer of protection. It is difficult to point to a specific catalyst. It was a combination of the recessive effects of a potential worldwide ebola outbreak, of the European excessive debt burden coming back to haunt Greece, France, Italy and Spain, and of the draining of the unlimited liquidity made available to the market at the moment by central banks. From an initial unchanged open, European indices saw their risk premia widened by 10% during the morning. Snap backs tighter were numerous and vicious, but only led to more widening. It took some dovish declarations by Fed officials to calm the market which eventually closed only marginally tighter. Someone casually looking at the daily variations would be forgiven for thinking it was a benign session, but that would be missing the huge total daily variations (30bps in total on iTraxx Main and close to 120b on iTraxx Crossover).