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15th September 2019

Rabbit out of the hat

MARKET CLOSE:
iTraxx Main

45.6bp, +0.6bp

iTraxx X-Over

238.3bp, +2.8bp

🇩🇪 10 Yr Bund

-0.45%

iBoxx Corp IG

B+119.5bp, -3bp

iBoxx Corp HY

B+391bp, -11bp

🇺🇸 10 Yr US T-Bond

1.90%

🇬🇧 FTSE 100

5510.33, (-5.25%)
🇩🇪 DAX

9632.52, (-3.68%)
🇺🇸 S&P 500

2541.47, (-3.37%)

Credit not the only winner…

Mario Draghi is a magician. There’s little doubt left. Judging by the post-ECB rally in risk assets, the great conjurer has pulled it off again. Increasing Eurozone wage growth, the Chinese relenting on pork imports (out of necessity, in our view) amid rising trade-tariff optimism, US retail sales on the up in August and no-Brexit all fed into the equation. It’s only left for the Fed to do its stuff later this week and we can conclude a very satisfactory quarter.

But hold on.

The ECB will have lowered funding costs, likely sustained macroeconomic growth at these depressed levels, will manage to keep the default rate at less than 3% and boosted the high/low beta compression trade. With it will come a huge amount of frustration as the central bank fixes a corporate bond market that isn’t broken. It has provided a stimulus which isn’t needed and will be likened to nothing more than an overdose.

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