After weeks of relative calm, the market for credit default swaps appears to have woken up to the credit storm that continues to rage.
In Europe, the benchmark Markit iTraxx Crossover index closed 35 basis points wider at 530.7bp, while the Markit iTraxx Main closed above 100bp for the first time in more than two months, widening 9.3bp on the day to 104.25bp.
Banks and carmakers bore the brunt of the day’s sell-off, hurt by a string of analyst downgrades of financial names, fresh capital raising efforts to repair bruised balance sheets and speculation that Chrysler was in the process of filing for bankruptcy.
The wipeout on Wall Street did little to help sentiment across the pond. As the Dow tumbled, US credit moved steadily wider. By mid-afternoon in New York, the benchmark index of investment grade US corporate debt was trading almost 6bp wider at 139.55bp.
Citigroup, hurt by a bearish note from Goldman Sachs, added 12bp to 140bp, while Countrywide - which is facing a string of lawsuits - added 35bp to 235bp.
Among the banks and brokers, Morgan Stanley widened 15bp to 205bp, Goldman Sachs moved 10bp to 130bp, Merrill Lynch added 15bp to 252bp and Lehman Brothers jumped 25bp to 290bp.
In the deeply distressed financial guaranty sector, Radian’s CDS were trading at 40 points upfront - or $4m dollars - and 500bp annually, according to broker Phoenix Partners Group.
Radian’s spreads blew out after Moody’s on Wednesday downgraded the insurer and its subsidiaries, citing “the deterioration in Radian’s capital adequacy and medium term profitability prospects, as well as the firm’s limited financial flexibility.”
