Credit derivative markets in Europe were once again threatening to breach record wides reached Friday. Volumes were muted and activity light on Monday morning but still the tone remains bearish, tracking the equity markets, and leading some traders to believe credit could be due for a bounce soon.
The European Markit iTraxx Crossover index of the 50 mostly junk-rated borrowers’ CDS - continued its widening spread trend. The latest prices being quoted were around 1162.5bp, after a closing Friday 1150bp, flirting with its record high print Friday of 1170bp.
The iTraxx main index of investment grade borrowers’ CDS - often led by the sentiment towards the creditworthiness of financial sector borrowers – was quoted at 210bp this morning having closed at 203.75bp Friday. The index underperformer was Aviva PLC CDS, the UK’s biggest insurer, which was quoted at 550bp this morning having closed at 424bp Friday. The moves follow a widening trend in Aviva CDS after it last week unveiled a heavy 2008 loss.
With US stock futures down this morning, the spread widening and negative tone is likely to persist today.
Overnight the Markit iTraxx Japan index widened yet again, 22.5bp to 527.5bp, as the country suffered its largest current account deficit ever in January. This caps a terrible month in the Japan index, which over the past 30 days has widened a massive 127.5bp.