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12th September 2019

Draghi: No happy ending

MARKET CLOSE:
iTraxx Main

45.0bp, -4.6bp

iTraxx X-Over

235.5bp, -13.4bp

🇩🇪 10 Yr Bund

-0.51%, +5bp

iBoxx Corp IG

B+122bp, -4bp

iBoxx Corp HY

B+402bp, -14bp

🇺🇸 10 Yr US T-Bond

1.77%, +4bp

🇬🇧 FTSE 100

7167.95, (-0.61%)
🇩🇪 DAX

12670.11, (+0.32%)
🇺🇸 S&P 500

2989.69, (-0.21%)

HY/IG compression: Shades of 2016…

The President of the central bank might have been a little schackled, but Draghi largely likely got his way in finding some middle ground, enabling him to keep the doves and hawks both content. A compromise 10bp cut on the deposit facility to -0.50% – as well as a tiering system for banks’ holding of excess liquidity – and €20bn of QE from November is good enough. The open-ended nature of the purchases is going to boost that hunt for yield. Hold on tight.

The markets might be a touch disappointed that it wasn’t 20bp and €30bn, respectively, but the ECB did the very least we could have reasonably expected. Fixed income markets are not going to fall out of bed on this news. Thus a reasonable interpretation from seasoned investors on the day’s events will be that there is more to come in 2020. In fact, there is an inevitability about it all.

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