European credit markets saw sharp rises in the cost of protecting bonds against default on Monday as equities also fell and investors digested the news that Barclays had had its credit rating cut by Moody’s.
Banks were mixed performers, with Credit Agricole, RBS, Santander and BBBVA all seeing their cost of protection drop in early trade, while UBS, Deutsche Bank and HBOS, were among those whose cost of protection rose by a handful of basis points.
Barclays cost of protection was just 2.6 basis points higher at 168.5bp early on according to Markit Group, but traders said that by mid-morning it was 14.5bp higher at about 187bp, meaning it costs about €187,000 per year to insure €10m of Barclays bonds over five years. This puts Barclays credit default swaps back near their recent highs of mid-January, but well short of the peak in October following the collapse of Lehman Brothers.
The indices overall were sharply worse with the main iTraxx Europe index of investment-grade names more than 6bp wider at 166.2bp. The iTraxx Crossover list of mostly junk-rated names meanwhile was more than 31bp wider at 1109.5bp. The Crossover is quite near its all-time high of 1120bp struck in mid-December, but the main index is way below its early December peak of 215.9bp.
Within the investment-grade index, chemicals, construction, carmakers and retailers were the worst performers as further poor economic data were released including news that eurozone inflation had dropped to just 1.1 per cent.
Lafarge was at the bottom of the pile, its cost of protection jumped 37.7bp to 924.2bp, according to Markit, followed by Clariant, 29.2bp wider at 557.5bp. GKN was 20bp wider, Holcim 18.7bpwider and Valeo 18.5bp wider.
BMW, Daimler, Peugoet and Renault all suffered as did Carrefour, Next, Metro and Casino among the retailers.