CDS on the debt of the US government reached all-time highs on Wednesday as investors struggled to digest the government’s latest stimulus package splurge. (On Tuesday the Federal Reserve unveiled an $800bn injection into consumer lending markets, prompting further unease over the level of national debt and ballooning money supply.)
The news pushed the cost of protecting against US default over five years to an all-time high, rising 5 basis points to 49bp. The spread on ten year contracts too reached record highs, up from a close of 48bp to 53bp. But the US isn’t the only country about which investors are increasingly concerned. Alistair Darling’s latest plan to resuscitate the UK economy has got the markets in a fluster too – UK CDS hits new highs every day. Tuesday it closed at 95 basis points, nearly double the cost of default protection of its neighbours France and Germany.
After a positive close to the US credit markets, overnight in Japan the cost of credit protection rose, as the Nikkei dropped 110 points, a 1.3 per cent fall. The iTraxx Japan Series 10 hit 325bp at one point from a close of 310bp. Last Friday the index touched an all-time high of 380bp.
Meanwhile, trade was quiet in European corporate CDS this morning as investors scaled down activity before tomorrow’s Thanksgiving holiday. Most European CDS indices closes tighter yesterday, but looked direction-less.
The Markit iTraxx Europe index of credit default swaps written on investment-grade corporate debt was narrowly tighter by 1bp basis points to 167bp this morning. The junk-rated iTraxx Crossover index was 1bp wider to 876.75p, the minuscule rise illustrating the lack of trading volume in the markets.
There was further credit improvement for media company Reuters. Spreads on this member of the Europe main index continued its narrowing of late, to fall 4bp to 41bp, the largest improvement of any constituent of the index.