The mood in credit derivatives markets improved on Wednesday, with indices across the board performing better, although some analysts saw the relief rally as artificial on grounds there was still no follow-through buying of cash bonds.
European credit indices followed a better close in the US, on the back of one of the best equity market rallies in years. Despite a negative start on Tuesday, credit derivatives index turned around, particularly in European financials, with iTraxx Senior and Sub Financials indexes closing 21bps and 43bps respectively off the previous session’s wides.
Wednesday’s strength did, however, come after an initial sell-off early in the day. The Europe Markit iTraxx crossover index of the 50 mostly junk rated borrowers CDS was quoted just inside the 1100 tide mark at 1095bp, having been as wide as 1111.75bp. Some analysts blamed short covering as after a string of weak days in credit Tuesday’s bounce had been expected by some. The index – a barometer for sentiment towards corporate credit – closed the previous session at 1114bp.
The main index of investment grade borrowers’ CDS, meanwhile, was quoted at 194.65bp on Wednesday morning, versus a previous close of 202.8bp and levels as wide as 202.42bp in the morning.
Overnight the Japan iTraxx CDS index, however, continued its ever persistent widening trend. It closed at 556bp, 20.71bp wider. Japanese sovereign CDS was wider at 117bp versus 110bp. In contrast, the most traded US CDS index, the CDX NA IG, was quoted at 241.96bp at the close on Tuesday, which was some 20bp tighter.
Banco Popolare, meanwhile, was one of the worst corporate performers on Wednesday morning according to CMA. Its 5-year senior CDS was being quoted at 575bp, some 75.7bp wider than the contract’s previous close. On the flip side one of the better performers was Central Japan Railway Company, being quoted at 83.76bp, some 11.238bp tighter.