With many traders coming back on Tuesday after bank holiday it was a shorter but positive week on the High Yield credit space with the index posting a return close to 40 bps with. Cash outperformed synthetic which widened of 1 point to 324 bps confirming the extremely responsiveness of the Xover to other indexes and macro variables.

Even if US unemployment rate dropped more than expected to 8,4%, the news in the market is the 2 harsh negative sessions of the main American equity indexes. Only time will tell us if this is the start of a mean reverting process or “buy the dip” opportunity. As the graph above shows, investors are rotating towards a Value stocks, which means a more defensive approach in the equity segment. What is clear to us, is that, part of the US equity market shows extreme evaluations and, in an environment, dominated by uncertainty with a presidential upcoming election equity market will be subject to a higher than usual volatility. Even if HY and equity markets present some correlation (which is a topic that should be addressed furtherly) the impact on daily drops is often contained, i.e. on Thursday the Nasdaq has lost almost 5% versus a positive 14bps of the Eur HY index.