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Daily Archives: 6th December 2018

6th December 2018

Stormy… waters

iTraxx Main

87.8bp, +5.6bp

iTraxx X-Over

350.5bp, +20bp

🇩🇪 10 Yr Bund

0.23%, -4bp

iBoxx Corp IG

B+175bp, +2.5bp

iBoxx Corp HY

B+520bp, +11bp

🇺🇸 10 Yr US T-Bond

2.87%, -5bp

🇬🇧 FTSE 100

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🇩🇪 DAX

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🇺🇸 S&P 500

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Donning tin hats…

Oh dear! The arrest of Huawei’s CFO takes us into a whole new ball game. It’s no longer just macro we need to worry about (in the trade spat between the US and China), but geopolitics now too.

China won’t look favourably on Meng Wanzhou’s arrest in Canada

China will respond. News of that overnight arrest in Canada took equities in Europe lower by around 3%, the S&P was back in the red for 2018, it necessitated a bid for safe havens that pushed 10-year Bund yields to below 0.25%, and made for yet another session in which credit spreads moved wider. Primary was closed. The nail in the coffin for December would be a heavy defeat for Theresa May’s Brexit plan in Parliament next week.

So the path of least resistance is lower (for equities), wider (for credit spread) and lower (for government bond yields). Mostly rather unfortunate and, in hindsight, the wheels on the bus have been coming off since the back end of Q3. After such a hopeful, aggressive rally in the opening session of this month, it now appears as though December is going to be the most difficult of months.

Credit investors are, for sure, feeling some considerable pain at the moment. On reflection, we would concede that it was probably to be expected given the rumblings and volatile situations around macro and geopolitics.

It doesn’t look like much is going to change into the start of next year (at least) with Brexit, Sino-US trade tariff talks/skirmishes and even the Italian/EC spat on the 2019 budgetary proposals set to drag on.

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