The European credit markets started the week on strong footing and consolidated on the rally that began last Wednesday as the insurers and carmakers especially among the companies that had led investment grade market wider saw much better performance.
The main iTraxx Europe index of investment grade companies was 11.6 basis points tighter Monday morning at 182.8bp, according to Markit Group, meaning it costs €182,800 per year to insure €10m worth of the index over five years. The cost of protection on the index has now dropped by about 25bp, or €25,000 annually, since its recent peak of more than 207bp last Wednesday.
The Crossover list of mainly junk-rated companies, meanwhile, was 29.4bp tighter at 1061.2bp, meaning its is down almost 90bp from its recent peak of 1150.3bp on Friday March 7.
Most insurers have been under heavy pressure in the credit and stock markets in recent weeks as concerns have grown about the strength of their capital bases and their ability to withstand further investment losses. In Europe they have been among the worst performers in the credit default swaps markets.
However, the pressure seemed to ease off on Monday Swiss Re, Aviva, Aegon and Axa among the best performers in the market. Aviva was the leader, 29.3bp tighter at 452.5bp, which nevertheless remains an extremely high level for such a company and more than double its level of mid-February. Swiss Re was 15bp tighter at 766.7bp.
Carmakers and parts suppliers were also on much better form having been similarly hammered in recent weeks. Valeo led the way, tightening by 30.9bp to 497.5bp, while Volvo, BMW, Peugeot and Renault were all in the top ten performers in the iTraxx main.
A number of banks also did well, including Barclays, which became the latest bank to tell investors it had seen a strong start to the year, as well as saying it was in talks over the possible sale of part of its asset management business. The bank’s CDS tightened by 6.7bp to 238.3bp.
However, the HBOS part of Lloyds Group was not so lucky, being the only bank moving in the wrong direction. It added2.8bp to 216.5bp. Marks & Spencer, the UK retailer, was also having a bad day, widening by 5.8bp to 355.0bp.
The worst performer by far however was Fortum Oyj, the Finnish utility, which saw its CDS widen by 82bp to 160.8bp, after it launched a €1.5bn dual tranche bond issue with a €750m five-year note that bankers said would price at about 195bp over mid-swaps.