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Daily Archives: 5th February 2020

5th February 2020

🍾 Party in full swing, again

iTraxx Main

43bp, -0.8bp

iTraxx X-Over

213bp, -3.5bp

🇩🇪 10 Yr Bund

-0.37%, +4bp

iBoxx Corp IG

B+103bp, -1bp

iBoxx Corp HY

B+344bp, -9bp

🇺🇸 10 Yr US T-Bond

1.64%, +4bp

🇬🇧 FTSE 100

6104.72, (+1.14%)
🇩🇪 DAX

12660.25, (+0.47%)
🇺🇸 S&P 500

3327.77, (+0.62%)

Throw in the towel…

It used to be ‘don’t fight the Fed’. Now it’s don’t trade against that wall of cash. There is still a bucket load of it looking for a home, and an ever present expectation of even more, cheaper money to come if things go awry (via an appropriate policy response). That dynamic has sustained this current asset price rally (bubble) for a decade.

There’s obviously legs in it still, as the US equity markets again flirted with record highs.

So whatever the various event-risk scenarios, the markets are in no mood to give up and asset prices are being driven higher. Clearly, buying the dip still works despite protestations in some quarters to the contrary. There’s just too much liquidity in the system. It needs a home.

The raft of PMIs during the session point to a remarkable recovery in the UK post-Brexit, although there was more of a mixed bag across the Eurozone. Nevetherless, the service sectors are bouncing back – especially in the UK (and Germany) and they helped to establish a positive tone through the day, coming after a more cautious open.

It’s been a while, but it meant that the midweek session felt like it was back to normal. In credit, that meant deals galore and a borrower printing a seven-tranche, dual-currency deal (there was also a five tranche offering) to get the IG non-financial juggernaught back on the road.

Equities, meanwhile, continued to exhibit some kind of a post-coronavirus recovery push, with scant sign that a breather might be needed. And that’s leaving definite signs of irrational exuberance in the equity recovery.
We suppose that it helped that there were reports of a cure for the coronavirus in the works, although it will be too late to distribute for the current outbreak.

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