The cost of buying protection against default on investment-grade bonds in Europe decreased slightly on Wednesday, as spread indices tightened after initially increasing in anticipation of the release of the US bank stress test results on Thursday.
The Markit iTraxx Europe index, which tracks the 125 most-liquid investment grade names in Europe, was trading at around 134 basis points, 4.50bp tighter than Tuesday’s close.
Earlier in the day, the index widened on reports that Bank of America would need as much as $34bn in additional capital following its government stress test.
On Wednesday morning Irish Life and Permanent’s credit default swaps were trading at around 335 basis points, about 8bp higher than on Tuesday’s close.
The Markit iTraxx Crossover index, which tracks mostly junk-rate bonds in Europe, took a similar tack, widening early on Wednesday before tightening by midday to 790bp, or 5bp lower than Tuesday’s close.
Mehernosh Engineer, a senior credit strategist at BNP Paribas, said the movement was down to “volatility caused by anticipation of the stress test results”.
“We are just marking time until they are released Thursday,” he added.