CDS report: Spreads overflowing | FT Alphaville

CDS report: Spreads overflowing

Markit CDS chart for BP, Anadarko, Transocean and Halliburton

Investors with appetite for risk were still on the back foot today as spreads continued to widen. A late sell-off in US markets yesterday ensured that European spreads would open wider this morning. The seemingly omnipresent sovereign debt concerns played their part, as did the oil spill disaster in the Gulf of Mexico. Credit markets have recovered somewhat this afternoon following a solid open in the US.

  • Markit iTraxx Europe 122.5bp (+0.5), Markit iTraxx Crossover 576bp (+3)
  • Markit CDX IG 119.25bp (-2.5)
  • Markit iTraxx SovX Western Europe 152bp (+5)
  • Markit iTraxx Senior Financials 174bp (+1.5)
  • Greece 715bp, Spain 250bp (+1), Italy 230bp (-2), Portugal 343bp (+1), Ireland 260bp (0)

The oil and gas sector was comfortably the weakest in credit yesterday, and its performance today was even worse. BP had another day to forget, its spreads widening 100bp to 270bp, soaring past yesterday’s record wide level. The announcement that the US Department of Justice is launching a criminal investigation added another risk to the many that BP is already facing. Following its failure to stem the flow of oil from its leaking well, BP said that it will take at least another two months for its latest effort to work. Each day that passes adds to the mounting clean-up costs that BP faces.

As well as civil and criminal litigation risk, BP and others operating deepwater drilling operations could be looking at far more stringent regulation. A six-month moratorium has already been enforced, hurting the likes of Transocean, Halliburton and Anadarko in addition to BP, which is the largest oil producer in the Gulf. With the exception of Halliburton, all are now at record wide levels. BP is now trading wider than Xstrata, a volatile BBB commodities credit.

BP’s problems had a knock-on effect on the broader market, with the Markit iTraxx Europe index widening beyond 125bp earlier today. The index recovered in the afternoon and finished only slightly wider at 122.5bp. The Markit iTraxx Crossover index also closed broadly unchanged at 576bp. Aside from the energy sector, financials were still under pressure, the Markit iTraxx Senior Financials going as wide as 177bp before closing at 174bp.

Markit’s Gavan Nolan wrote this CDS report