European credit markets took no cheer from the UK rate cut – having been a bit more positive earlier on Thursday, tracking positive moves in equity markets as their only guide for direction with little credit specific news.
Investors had been holding back ahead of the rates decisions, with trading volumes thin, with one senior trader saying there was not much conviction in any moves this morning.
But the news that the UK had cut rates to their lowesst level since 1951 did nothing but push the European main index of investment grade borrowers’ CDS to a new high.
Having flirted with the 200bp level for a while the rate news took the Europe iTraxx main to 200.125bp, against 193.5bp on Wednesday evening.
And there is not much out there to inspire hope. “We will be bouncing along the bottom now for the next six months,” one trader declared.
The Markit Itraxx crossover index, which tracks the CDS of 50 mostly junk rated borrowers, was quoted around 996bp earlier on Thursday morning, having breached 1000bp Wednesday. After the rate cuts it was back out at 1001.6bp.
Japan‘s iTraxx CDS index was the only one to tighten having traded at record high levels yesterday. It closed at 360bp, 5bp tighter.
All the US CDS index closed wider on Wednesday. The CDX investment grade index closed at 262bp, 2.79bp tighter, having hit a high of 271bp.
Meanwhile, there was a projection that aggregate losses of up to €20bn are possible for investors in high-yield European companies publicly rated at ‘B-’ or lower, according to a report from Standard & Poor’s Ratings Services on Thursday.