Scissor’s effect between tighter US credit spreads and wider € ones

Outperformance of US credit after the election of D. Trump In line with the sharp outperformance of US equities (+5% for the S&P 500 last week) vs their € counterparts (-1.1% for the EuroStoxx 50) after US elections, US$ credit spreads have been sharply compressing vs € ones over the past week: US HY spreads have tightened by 29bp while €HY ones are wider by 9bp vs swaps Corp Hybrids have also underperformed (+9 bp), while AT1s have managed to tighten further (-6 bp), benefiting from expectations of steeper rate curves notably CDX NA IG has tightened by 6 bp, largely outperforming the iTraxx Main (-4 bp) M eanwhile, low beta credit segments have suffered vs swap, on the back of another large compression of swap spreads (7bp on the 10Y tenor, now trading negative). As shown on the chart above opposite, the sharp widening seen in iBoxx Sovereigns and Supras vs swaps (+5 pb , on the back of increased expectations of future supply for the latter notably after US elections) has again weighed on Covered Bonds, Non-Financial Senior and financial senior spreads. As a reminder, the short term sensitivity of credit spreads to a compression of swap spreads is around 0.5x, although that sensitivity is much lower in our LT models. Sector-wise, REIT is outperforming one again last week (-1.5bp) while Autos (tariff risk + disappointment from BMW) and Energy (effect of lower oil prices) have underperformed.