Expectations of significant losses by Japanese electronics group Sony and a string of gloomy announcements from European retailers have spoiled the mood across European credit markets.
The iTraxx list of European investment grade companies was trading around 169.7bp this morning, over 15 points wider than Monday’s close, with traders reporting widespread profit taking. Buying activity in broader credit markets appears to have stuttered this week following a buying spree by retail investors early in the new year.
Though appetite for high yield bonds remains notably weak, investment grade investors have snapped up new corporate debt issuances from the likes of Deutsche Telekom of Germany, French media group Vivendi and British power supplier National Grid. All three issues saw heavy demand, with traders claiming they were 3x-4x subscribed. There is also talk of new debt being issued by Dutch telecoms group KPN. This sent the cost of credit protection for KPN 5bp-10bp wider on the day.
In the high yield market, Fresenius continued to dominate market talk as roadshows to promote its new $650m corporate bond kicked off in Europe and the US. Traders pitched pricing for the new bonds at a coupon of less than 10 per cent, noting that its other existing bonds trade with 6 per cent – 8 per cent yields. Cost of protection for the German healthcare group’s existing bond issues widened a further 20bp on Tuesday morning to 370bp-400bp, traders said, after jumping around 70bp on Monday, when the news first emerged.
The broader European Crossover index of mostly junk issuers is hovering at 980bp on Tuesday morning, around 10bp wider on yesterday’s level.
Amongst Asian issues, the CDS for Sony – a Nikkei 225 benchmark — moved out to 120bp-130bp late morning on Tuesday from 95bp-115bp at the open amid reports that the company will post its first full-year operating loss in history as the world economy continues to flounder.