Report
Credit allocation against the backdrop of political risk
Credits have been largely hit by political risk this week with AT1s, sub insurance and corporate hybrids being the most affectedFinancials have been notably underperforming Corporates over the past week, in contrast with their outperformance YtDGiven that French credits represents on average almost ¼ of iBoxx credit indices, those are therefore highly sensitive to political riskUnder a stressed political scenario, we believe the iTraxx Main could trade up to 90bp… compared wih 51bp year-end target in an optimistic scenario. Therefore, the current risk/reward in the credit market is clearly not compelling in the current environment, despite this week’s spread wideningOn a risk/reward basis, we recommend:o favouring Senior IG Corps, REITs, being seller of protection on iTraxx indiceso underweighting financials in the meantime, on the back of i/ higher sensitivity to sovereign spreads, ii/ higher exposure to France in the iBoxx indices
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Thibaut Cuilliere
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