European credit markets took up the happier tone of stock markets on Wednesday after two days of ferocious risk disposal that saw the iTraxx Crossover list of mostly junk rated names hit an all-time high and the main investment grade index hit its highest since mid-December.
Banks led the fall in the cost of protecting corporate debt against on Wednesday, making up ten of the twenty best performing names in the market by late morning. BNP Paribas was most improved, with the spread on its credit default swaps tightening by 12.5 basis points to 92.75bp, but was closely followed by Spain’s Banco Espirito Santo and Santander, UniCredit of Italy and France’s Credit Agricole, which all saw their costs of protection cut by more than 5 per cent, according to data from Markit Group.
Agricole’s move came in spite of a worse net loss than expected for the fourth quarter of €309m and a bearish statement from its chief executive that the crisi would not pass until the second half of 2010.
The recovery among banks helped the main iTraxx Europe index tighten by 1.8bp to 192.8bp, while the Crossover list was 5.3bp tighter at 1135.1bp, down from the markets record high on Tuesday of 1140.4bp.
However, analysts said that credit remained vulnerable to further volatility, depending greatly on what happened with equity markets, which appear to be driving the broad market mood at present. Analysts at BNP Paribas said:
As long as stock markets remain vulnerable, volatility for spreads will remain elevated, with the potential of breaching 200bp on the main over the next few days – which is heavy in terms of economic news.
Some sectors were still suffering on Wednesday, with insurance foremost among them. Aviva was 14.1bp wider at 302.5bp in spite of rising as much as 9 per cent in the stock market following Old Mutual’s reassuring update to investors. Swiss Re, Axa and Aegon also saw strong moves wider on the day.
Bertelsmann, the German media group, was the worst performer on the day, however, adding 40.96bp to 328.33bp after bad news out of German TV rival ProSeiben and out of the UK broadcaster ITV.