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Cheap Cheaper Cheapest?

10 December 2014 by lberuti

The tightening of risk premia that the credit market has experienced over the last 6 weeks has been broadbased and relentless. The only sector that was left aside was energy, on the back on the freefall of oil prices (which lost another 4% today reaching a multi year low). The recent wobbles related to Greece since the beginning of the week pushed financials and peripheral names a tad off their tightest levels though. That leads to this relatively unusual situation where the spreads which were the tightest at the beginning of the rally are the spreads which have tightened the most in absolute terms. Some have now reached levels which most people see as incompressible, and they will soon float again the idea of "cheap shorts". But we have just seen that what appear cheap today can be cheaper tomorrow.