Long double-dip risk, short periphery credit risk

- Maintain an aggregate long through core credits – "A muddle-through as opposed to a double-dip remains our economists’ central scenario and we believe core credit spreads already discount much of the near-term downside in the economic data."
- Short periphery corporate credits – "With spreads on periphery sovereigns within striking distance of their YTD wides, we think the recent performance of several periphery credits with a strong domestic bias is overdone. We would short these against a basket of credits that are either geographically diversified or based in core countries."
- Long Italy over Spain – "The spread between Spain and Italy is now at its tightest level since May. While Italy may carry a larger public debt burden, we think Spain faces far tougher dynamics. As such, we’d position for renewed divergence in CDS."
- Long Main over Crossover – "Crossover has outperformed Main over the summer, but now looks less attractive. Upside in HY rests on a rather bullish default rate scenario and continued inflows to absorb supply. We reckon Main is better positioned to weather a prolonged period of low growth."
- Long CDX IG over iTraxx Japan – "iTraxx Japan has outperformed other CDS indices this year for no apparent fundamental reason. Technicals may be strong, but with the Japanese economy showing renewed signs of weakness, we’d rather be long the CDX IG here."
- Long $ bonds over € bonds – "With the drop in the basis swap over the summer, several cross-currency switches from € to $ have started to work again."
- Long European over US credit card debt – "The spread between European and US AAA card debt has narrowed over the last year, but still looks excessive when you consider how similar the fundamental characteristics are."

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