European credit derivatives markets continued to widen on uncertainty around the debated US government backed bad debt bail out plan – known as the Troubled Asset Relief Program.
European CDS indexes closed on their wides Tuesday and continued to widen this morning. The Markit Itraxx Europe main index of investment grade borrowers’ credit default swaps, which represents the cost of protecting their debt against default, was trading at 113.25 basis points this morning versus a closing level of 110.33bp, according to pricing from Markit. The Crossover index of mainly junk rated borrowers’ CDS was also wider at 1130 GMT at 587bp, versus a close of 577.62bp.
And the HiVol index of the most volatile investment grade borrowers’ CDs was trading at 217.75bp, wide of its closing 213.17bp level.
After European indexes closed at the wides, US credit markets also ended up on a sour note with both the main investment grade and high yield indexes finishing at or close to the days wides, according to analysts at Deutsche Bank.
“The reality is that there are still many questions that need to be answered but this is unlikely to happen overnight. Therefore financial markets are likely to be shrouded in some uncertainty until details of the proposed bail-out become clearer. This will also mean that economic data is likely to continue to take a back seat. That said if the proposed bail-out does stabilise the financial sector the attention is likely to quickly swing to economic growth prospects. Today is another relatively quiet day for US economic data with the highlight being existing home sales,” the Deutsche analysts said in a note.
They also note that the ABX market, which tracks the performance of mortgage backed debt, had performed strongly on Monday but was unchanged to slightly lower on a day of relatively light activity ,yesterday.
Markit quote the triple-A tranches of the ABX index, the top rated slice, trading up 0.29 points on the day at a price of 52.21. But at the other end of the spectrum the lowest rated, riskier, tranche of the ABX, rated BBB-, was down 0.06 points at 5.61. ittee on the financial crisis.
The US credit markets were indicated tighter this morning though, according to pricing from Markit which was showing the CDX investment grade index at 158bp from a closing level of 160.59bp, which was 9.74bp wide of the previous day’s close.
As investors wait poised to see what happens with the US TARP plan, the cost of insuring 10-year U.S. government debt against default rose to a record high on Wednesday of 29.2basis points, from 26.5bp according to CMA. CMA said CDS on five-year widened to 22.0 basis points from 20.5 basis points. The announcement that British Energy would be taken over by EDF led EDF’s CDS wider at 77/79bp said credit analysts this morning.