London credit derivatives traders reported a relatively quiet morning on Monday, with volumes dampened by the President’s Day holiday in the US. There was a distinct lack of cheer as European credits managed to give up some of the gains they had made over the past week, particularly in retail names, according to one trader.
The main Markit index of investment grade borrowers’ credit default swap spreads was quoted at 160.43bp versus a closing level Friday of 156.25bp. The Crossover index of junk borrowers’ CDS was also wider at 1088.25bp this morning, having ended at at 1074.29bp on Friday.
Trading in credit overnight in Japan did little to help matters – the credit derivatives index of Japanese borrowers’ CDS was 20bp wider on Monday at 470.58bp. Investors are stumping up for protection against Japan itself defaulting on its debt, with the sovereign CDS jumping 18.7 per cent to 92bp this morning, according to CMA.
That followed a poor performance in the US where credit derivatives markets all ended wider Friday.
Some of the best performers in credit markets on Monday included BNP Paribas, Germany and Bank of Ireland, according to CMA data.
The cost of protecting against default of Germany on its debt fell 3.5 per cent to 67.5bp versus Friday’s close. BNP Paribas’ CDS spreads fell 4.7 per cent to 75.9bp. And despite a recent credit rating downgrade by Fitch Ratings, Bank of Ireland CDS was 3.5 per cent tighter at 400.2bp.
The worst performers of the morning were led by Anglo Irish Bank, which was also downgraded by Fitch, widened 22.1 per cent to 702.6bp from its Friday closing price.
UK and US sovereign CDS have not moved much since Friday. UK CDS was 147.3bp on Monday versus a closing level of 151.6bp Friday. US CDS went the other direction, hitting 88.3bp this morning from 87bp on Friday.
The rest of the week is data-laden and credit strategists have their eyes on what that could mean for the market. But the amount of issuance from corporates into the bond markets remains a focus. As Nick Burns, analyst at Deusche Bank, put it in a note to clients:
So far in February there are few signs, in what has traditionally been a slightly quieter month, that issuance is slowing down and what is certainly true is that there is still a very strong demand for new deals with some deals/tranches still more than 5 times oversubscribed… So far in February, with half the month gone, we have already seen more than EUR14bn of issuance and therefore are well on our way to another EUR20bn plus month for new supply in the Euro market.