Investors’ faith in the reliability of their counterparts to trades in the market for credit default swaps improved this week, according to the CDR Counterparty Risk index.
The news comes in spite of an earlier report from Greenwich Associates, out Monday, that found quite the opposite - at least anecdotally - amongst US firms.
Contra Greenwich, CDR’s index fell 5.5bp over the week ended today to close at 135bp, the tightest spread in more than five weeks.
“Thin volumes, lowered uncertainty, and monoline strength dominated GSE concerns, ARS settlements, and low conviction,” CDR strategist Tim Backshall said. “The major global CDS counterparties were swept up with the broad market’s rally on oil prices dropping significantly.
“Overall, US financials managed to outperform Europeans for the second week in a row,” Backshall said. Still, “equity markets have been far more exuberant than credit investors in the last week as the stocks of the CRI gained an average 7.2 per cent with all members rallying while the CRI tightened only 4.5 per cent with three (of the fifteen) members actually wider on the week.”
On the day, credit spreads in Europe continued to tighten despite disappointing economic news from the UK, according to Markit’s Gavan Nolan. By late afternoon Tuesday in London, the Markit iTraxx Europe index had tightened by 1bp to 91.8bp.
In the US, spreads were also holding up well in the face of declining stock markets.
Writedowns, losses and possible systemic collapse be damned.
