Spreads on European credit derivatives indexes widened on Tuesday, as recent rallies in equity markets petered out, taking with them a week long rally in credit.
Asia-Pacific shares fell on Tuesday to end a six-day rally, Europe followed the negative trend along with the US markets. Growing fears about inflation weighed on European stock markets and Wall Street stocks opened lower after Oppenheimer’s Meredith Whitney said the credit crisis will extend well into 2009 and possibly beyond.
As a result the Markit iTraxx Crossover index, which tracks the 50 most liquid speculative grade borrowers, was trading at 412 basis points Monday afternoon, or a cost of €412,000 to protect €10m of debt against default over five years. The Crossover closed at around 390 basis points on Monday.
The iTraxx Europe index, which tracks the 125 most-liquid names in the investment grade index, widened to around 70.5 basis points Monday from a closing level of 62.5 basis points Tuesday.