The US has been so hurt by the financial turmoil that markets now view its credit worthiness as akin to – or even worse than – that of McDonald’s, a shocking fact even if you believe that both are fronted by clowns.
One broker quoted McDonald’s CDS at about 26.5 basis points, compared with 30bp for the US, on Friday morning and another desk quoted both about 25bp. The picture has worsened since the news that politicians and public servants in Washington failed to seal a financial bail-out deal on Thursday night. McDonald’s closed at 28bp versus 25bp for the US on Thursday, according to Markit.
European markets have also worsened Friday morning with the cost of protecting European debt from default higher on both the investment grade and junk rated indices.
The iTraxx main index was quoted at 119.75bp versus a closing level of 112.5bp. The iTraxx crossover meanwhile was quoted at 594.83bp versus a close of 580.70bp. The HiVol index of most volatile investment grade borrowers’ CDS, was quoted at 224.25bp versus a closing level of 212.3bp, according to Markit.
Initial indications from Markit are that the US credit indexes are also already quoted wider. At 6.30 New York time, the CDX investment grade index was quoted at 172.5bp up 11.9bp.
Total SA, the oil and gas company, saw spreads on its credit default swaps widen on rumours that it was considering buying a major stake in Spanish oil and gas company Repsol, according to analysts at Markit.
Reporting by Anousha Sakoui