Royal Bank of Scotland was being singled out by the credit derivatives traders in Europe on Tuesday morning as the UK bank that is also taking the most punishment in the stock markets saw its cost of debt protection pushed sharply higher even as the rest of the market was looking much better.
The spread on RBS’s credit protection was 44.6 basis points wider at about 328bp, meaning it costs an extra €44,600 annually to insure €10m of RBS bonds against default, and was the worst performing name in the iTraxx main investment grade index, according to data from Markit Group.
The bank’s shares were more than 18 per cent down at midday, the worst among the UK banks, though closely followed by HBoS, whose stock was more than 13 per cent lower. However, like other European banks, HBoS credit default swaps performed far better than they have in recent days, with their spreads 11.4bp tighter at about 272.5bp at midday.
The Markit iTraxx investment grade was 6.5bp tighter overall at about 126.5bp, according to Markit. Out of the top ten performers in this overall rally, the only non-financial names were GKN and Accorwere. Aegon, the Dutch insurer, rallied strongest, tightening by 19.4bp to about 416bp, reversing much of Monday’s move when insurers and carmakers took the brunt of the sellling.
The rest of the top ten performers in order of strength were Swiss Re, Commerzbank, Barclays, Aviva, Deutsche Bank, HBoS and UBS.
At the other end of the market, only Arcelor Mittal Finance and Glencore were really hit hard, while the next worst financial names after RBS were Allianz, which widened by about 0.5bp to 95.5, and Banco Espirito Santo, which was 2.5bp tighter at 145bp.