Volatility Surges, Credit Spreads Widen, and Select Opportunities Emerge
April proved challenging for major equity markets, with both Europe and the US experiencing declines. The EuroStoxx 50® Total Return fell by 1.17% and the S&P500® Total Return slipped 0.68%. Volatility spiked, as the VStoxx® index climbed to 22.5%, reflecting heightened uncertainty. Credit markets were also unsettled, with the iTraxx Crossover® (S43) widening from 328 to 350bps, as investors digested ongoing trade tensions and policy shifts.
Convertible Bond Arbitrage
The European convertible bond market saw €0.85bn in new issuance, including two notable non-dilutive deals-one from BofA into SAP and a retap of Vinci’s February CB. Both were priced at elevated implied volatilities, making them relatively expensive. In contrast, Redcare’s €300m CB offered more attractive terms. Despite a backdrop of volatility and shifting yields, CBs demonstrated resilience, benefiting from their convexity and ability to capture upside in turbulent markets.
On the US side, despite 5-year yields declining from 3.95% to 3.73% and high yield CDX spreads widening from 376bps to 407bps-moves that largely offset each other from a pricing standpoint, the month was marked by pronounced single-stock volatility, fuelled by tariff announcements and recession concerns. Looking ahead, we expect volatility to moderate from current elevated levels, but expect it will remain above those seen prior to the current US administration. Notably, there were no new US convertible bond issues during April.
Volatility Trading
April was marked by a sharp uptick in volatility, triggered by President Trump’s unexpected tariff announcements. This led to disorderly market moves, wider bid/offer spreads, and a spike in short-term volatility. Long gamma positions benefited as realised volatility surged, but the opportunity was brief, with implied volatility reverting by month-end. Dispersion trades faced headwinds as the S&P 500 rebounded sharply following a pause in tariff escalation, driving up correlations and erasing earlier gains.
Equity Strategies
The month’s volatility created select opportunities in risk arbitrage.
Carrefour’s acquisition of the remaining minority shares in its Brazilian subsidiary, Atacadao SA, offered shareholders a choice between cash or Carrefour shares, or a combination of both. This flexible structure embedded an implicit cross-currency option, which created a valuable arbitrage opportunity for investors able to monetise the price differences between the cash and equity alternatives as currency values shifted. The deal’s terms were improved by 10% in early April to address investor concerns, and ultimately 59% of free-float shareholders approved the transaction at the April 25 EGM, paving the way for completion by the end of May.
The Italian banking sector also saw renewed M&A activity, with Mediobanca proposing to acquire Banca Generali. Broader European equities were pressured by trade war concerns, but certain sectors-such as property and UK mid-caps-outperformed, while energy and China-focused funds lagged.
Credit Strategies
Credit markets experienced significant swings, with high yield spreads widening notably. The iTraxx Crossover S43 ended April 22bps wider, reflecting risk aversion amid outflows from European credit funds the largest since 2020. Activity on the private side included successful bond extensions and equity injections, demonstrating ongoing restructuring activity in the sector.
Macro and Trading Themes
Gold remains a core conviction amid global fiscal stimulus and shifting central bank reserves as they reduce their USD holdings. Hedge fund positioning reached all-time lows, as continuous degrossing led to outperformance among the most shorted stocks in late April.
Outlook
While volatility may persist amid ongoing trade policy uncertainty and fiscal concerns, we see this as creating attractive selective opportunities across both fixed income and equity markets. European credit markets have demonstrated remarkable resilience compared to their US counterparts during April's turbulence, and we expect this outperformance to continue. Sectors with limited tariff exposure-notably banks, telecoms, and utilities-offer particularly compelling risk-reward profiles, whilst increased dispersion across sectors and capital structures creates fertile ground for active managers.
Risk Warning
The views and opinions expressed are the views of Boussard & Gavaudan and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.
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