Sentiment remains bleak in credit markets as gloomy retail news from the US and Europe, as well as fears of more negative economic data to come, added to an already soured mood on Thursday morning.
Markets are still stinging from Deutsche Bank’s announcement of a record €4.8bn loss for the fourth quarter on Wednesday and rumours that HSBC, one of the UK’s largest banks, and Bank of America, a US banking heavyweight, could require a substantial infusion of new capital.
The iTraxx Crossover index of sub-investment grade companies surged above 1000bp to around 1013bp, according to Markit, roughly 35.5bp wider from the open on Thursday. The iTraxx Europe list of investment grade companies was also wider by 5.46bp on late Thursday morning at 174.7bp.
Financials were the worst performers, as investors anticipate more bad news to come from the sector.
The cost of buying credit protection for Deutsche Bank rose to 128.8bp from 126.3bp at the New York close yesterday and HSBC widened from 100bp to 105.2bp, according to CMA. CDS for Bank of America was barely changed at 186.3bp from 185 at the New York close.
CDS on banking giant Citigroup also moved wider, continuing the week’s trend. Citigroup CDS moved from 251.4bp onMonday to 366.6bp on Thursday morning.
The mood for Australasian banks, meanwhile, appears to be no better, as concerns about their balance sheets mount and as the Australian and NZ dollar tilted in comparison with the US dollar.
The cost of buying credit protection for National Bank of Australia, Australia’s largest bank, rose 18.3bp to 148.1bp, according to the CMA, amid reports that the bank could sell at least A$500m of government guaranteed notes. Regional banking peers, ANZ Banking Group and Westpac Banking widened in sympathy with NAB, with CDS for ANZ out by 17.5bp to 144.5bp, while Westpac saw an even bigger increase of 23.1bp to 137.5bp, CMA data showed.
In Europe, French telecoms group France Telecom and the UK’s Vodafone lightened the mood for investors in Europe. Their newly priced corporate bond issues traded tighter relative to German government bonds on Thursday, implying that buying appetite is still there for investment grade names, according to one trader.