Credit - A couple of charts summarizing recent credit markets violent moves

"The more violent the storm, the quicker it passes." - Paulo Coelho

Interesting entry points in cash bonds, if one believes in continuous Central Banks liquidity support and no recession. 

CDS Indices are finally starting to widen as well this week, but still massively lagging cash bonds recent moves (basis widening). For those with "liability visibility", basis trades are a safer way to play a “corporate bonds European QE” with less risk than o/r cash bonds longs.

Please see below a couple of charts summarizing recent credit markets violent moves via Bank of America Merrill Lynch, global cash bonds charts below (US / EUR / EM - IG &HY): 

- source Bank of America Merrill Lynch

US Investment Grade Index, Cash vs CDS basis :

- source Bank of America Merrill Lynch

As we posited in our last conversation the US "releveraging" has been fast and furious  which is not yet the case in European credit (far less "leverage" and "buybacks").

Therefore on European Investment Grade Credit as well as European High Yield, we have reached some interesting "entry" points when it comes to "cash credit". This could be an enticing play for investors "gutsy" enough to "front-run" a buying spree from the ECB on a much greater spectrum of corporate bonds than just a few issuers (which so far have been included in their buying program). 

Should the ECB decide to "ramp up" its balance sheet and include additional issuers in the corporate world, this would no doubt trigger a bull case for spreads. Of course, a potential rally in European credit would depend on additional "generosity" from our European central bankers, otherwise, the market will continue to struggle.

"I believe that truth has only one face: that of a violent contradiction." - Georges Bataille, French writer

Stay tuned!