The cost of protecting European corporate debt against default was slightly lower on Friday following George W Bush’s announcement to freeze interest rates on some subprime home loans for five years. The announcement sparked a surge in the shares of banks and home-builders in the world’s largest economy.
The Dow Jones Industrial Average closed up 1.3 per cent, while the S&P financials sector rose 2.6 per cent.
The iTraxx Crossover index of mostly junk-rated corporate debt tightened 5 basis points in morning trade to 349bp. This means it cost €5,000 less to protect €10 million worth of Crossover debt against default over five years than it did Thursday. The iTraxx Europe index of investment grade corporate debt was little changed at 55bp from 55.5bp at Thursday’s close, according to Deutsche Bank prices.
Morning trading was very quiet as traders await this afternoon’s payroll data from the US, which will give a further indication of the healthiness of the economy. The news may not be encouraging. Company hiring in November probably slowed to about half the pace of October, according to a survey of 82 economists by Bloomberg.
By Lindsay Whipp