European credit default swaps were trading at record wides on Thursday as banks and investors continued to deleverage amid fears of the severity of the global slowdown and worries that a large pipeline of corporate bonds hitting the market would further hurt sentiment.
The flagship iTraxx investment grade index, which tracks the debt of 125 companies in Europe, rose to a record 158 basis points, or 158,000 euros annually to insure 10m euros of debt over five years. This was up 8bp on the close on Wednesday.
The iTraxx Crossover index, which tracks the debt of 50 mainly high-yield companies, pushed above 800bp, to a fresh all-time record wide.
Sovereign debt spreads are also widening, particularly among emerging market economies, which investors are increasingly worrying about because of the deepening global economic crisis. Investors are also beginning to express concerns about the banking systems in the emerging markets after the developed governments have taken measures to address their beleaguered financial systems.
The cost of insuring Russia‘s debt rose to record levels above 1,000bp, distressed levels that often imply high risks of default, while Ukraine‘s levels rose to 2,800bp, also a record level.
Eastern European economies are under particular pressure because of their high current account deficits and exposure to foreign debt. Hungary, Ukraine, Turkey and Serbia are all struggling to keep their economies above water. Other economies in difficulty include Iceland and Pakistan. All of these economies are in talks with the International Monetary Fund over financial aid.