European credit derivatives widened for a fifth day in a row on Friday (ahead of US non-farm payrolls, the key economic number of the week) to break fresh record highs as sentiment continued to deteriorate because of the gloom surrounding the global economy.
The Market iTraxx Crossover index of 50 mainly high-yield names set a fresh record high of 1,036 basis points, or €1,036,000 to insure €10m of debt annually over five years. The index was trading at 880bp only a week ago.
The Markit iTraxx Europe index of 125 investment grade names rose to a record 208bp. It was trading at 170bp only a week ago.
Credit sentiment has deteriorated in particular amid increasing worries over the ability of companies to refinance their debt, with worries over the rising number of jobless a big concern.
Analysts are forecasting that employment in the US will fall by 340,000 in November in the monthly US payrolls report, due before the US market opens today.
This week has even seen the CDS contracts on some investment grade names move to trade up front, which means investors have to pay a big fee to gain protection against bond defaults of these companies at the time the contract is entered into, rather than simply making regular coupon payments, as is usual.
Top companies now trading up front, implying they are in serious danger of default, include GKN, the technology and engineering group, Lafarge, the French construction group, ArcelorMittal, the steel manufacturer, Glencore, the commodities trader, and Continental, the car parts maker.