Bernanke fuels risk rally

Ben Bernanke gave further impetus to the rally in risk assets following his opening statement to Congress today.

The Federal Reserve Cchairman warned in his testimony that a premature withdrawal of accommodative policy risked "slowing or ending the economic recovery and causing inflation to fall further".

These comments and the overall tone of the statement were interpreted as dovish, though it is questionable whether he said anything markedly different from previous utterances. He also reiterated his concerns about the low interest rate environment causing some investors to "reach for yield".

Nonetheless, the market is in a rallying mood, and sentiment was already positive before Bernanke's testimony. The Markit iTraxx Europe was trading 4bps tighter at 88bps by late afternoon, its tightest level since April 2010. The performance of the Markit CDX.NA.IG has been even more impressive - at 68bps, the index is at its tightest level since November 2007.

Minutes from the Fed's April meeting will be released at 19:00 London time, and it is unlikely that they will veer from Bernanke's comments. In other words, a tapering of QE is not on the near-term agenda, which is exactly what the market wants to hear.

Earlier in the day, the Bank of Japan and the Bank of England did little to surprise the markets, with both central banks maintaining the status quo. The latter's policy meeting minutes were interpreted by some as less dovish than last month, though the market impact was negligible.

Banks were among the strongest performers in single names, particularly those based in the periphery. Very few credits widened today, underlining how central banks are influencing the markets.

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