The cost of protecting European debt narrowed in morning trading on Friday on the back of higher equity markets in Europe and the US.
The iTraxx Crossover index of mostly junk-rated corporate debt tightened 7bp to 343bp after closing on Thursday at 350, according to Deutsche Bank prices. That means it cost €7,000 less to protect €10m worth of Crossover debt against default over five years than it did on Wednesday.The iTraxx Europe index of investment grade corporate debt was 1½bp tighter at 51bp, from the close of trading Thursday.
The FTSE100 was up 1.2 per cent in morning trade, while Wall Street closed slightly higher on Thursday.
The CDS of the owner of Yorkshire water company Kelda, which is being bought by a consortium that includes units of Citigroup and HSBC, was active on the market after the release of a scheme document. Its CDS narrowed a considerable 20bp in the early morning before widening back out to 118, basically unchanged from Thursday.
The narrowing of Kelda’s CDS this morning was “pure speculation,” said Marc Watton, a utilities credit specialist at BNP Paribas. “From the information (in the scheme document) we do not see any light being shed on the possible permutations that would affect its CDS. There’s nothing in the document to suggest what the final structure of debt and equity is likely to be and where that financing might be. If there is some information about that, it certainly isn’t public but restricted only to those very much in internal circles.”