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In The ECB We Trust

03 December 2014 by lberuti

Since the last ECB meeting at the beginning of October, expectations that some sort of action will be announced by Mr Draghi tomorrow during his press conference has been steadily building up. If not a full blown QE involving sovereign bonds, at least some form of corporate bond buying program is expected. That can be seen on this grapple which shows the aggressive recent tightening of risk premia in general. What you can also see is the outperformance of iTraxx Main vs CDX IG since the beginning of last month. The oil price freefall certainly played a part as, in the US, CDX IG includes more high-beta energy companies than iTraxx Main in Europe. But even since oil stabilized over the last few days, the momentum is still stronger on European credit, and the difference between the 2 indices now sits at more than 5bps. The European benchmark has now been tighter than its US equivalent for 4 consecutive weeks. Today’s disappointing economic statistics in Europe certainly did not help investors change their mind regarding the ECB’s course of action, even if they were looking for some downside protection using short dated options. These put purchases were the only minor dent in the indefectible faith they seem to have in Mr Draghi.