Halister News

(Bloomberg) -- Recent performance of EUR financial credit indexes suggests Brexit is being perceived as a Europe-wide problem rather than U.K.-specific, Bloomberg strategist Simon Ballard writes.

• Financial credit spreads may be the key barometer both for systemic risk concerns and bank-specific credit metric issues
• iTraxx Senior Financial index -6.3bps (at 129.18bps) at the time of writing, having touched ~136bps yday, the widest since February 8
  • Worst performers in senior bank debt since Friday include DB (+28bps), CMZB (+16bps), Lloyds (+15bps), Barclays (+15bps)
  • iTraxx Subordinated Financial index currently 270.10bps (-3.4bp vs yday close); ~314bp YTD wide reached Feb. 16
• Gyrations in iTraxx Sub Fins index may reflect changes in perceived measure of systemic risk; a liquid gauge of broad mkt sentiment
• iTraxx Senior Fins index may more closely represent changes in bank-specific fundamentals; currently seen as highly correlated to outlook for possible BOE rate cut in wake of Brexit, which would hit banks’ net interest margins
• In cash bonds, AT1 and CoCo debt prices are recouping some of recent losses this morning; Deutsche 6% 2049 CoCo +1.6 pts at EU79.17 at time of writing, but still down from ~EU84.4 last Thursday
  • Risk/yield characteristics of AT1/CoCo asset classes may make them better indicator of broad risk-mkt sentiment than bank-specific fundamentals; tend to be among first financial assets to react to swings in risk appetite

• NOTE: Simon Ballard is a credit strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.