This CDS report was written by Markit’s Gavan Nolan
High-yield credit underperformed investment grade in the European CDS market today in a leaden trading session. Both indices underperformed flat stock markets. The Markit iTraxx Europe index was trading at 129.5bp towards the end of the session, just over 1bp wider, while the Crossover was nearly 20bp wider at 794bp. The modest widening in the main index obscured a broad-based correction.
Steelmakers were under pressure after ThyssenKrupp posted fiscal second-quarter earnings. The German firm said it made a pre-tax loss of EUR455 million, more than expected though one-off items made a significant negative contribution. Of more concern to investors was the profit warning for the full-year. The company now sees itself making a loss in the “mid to high three-digit-million range” in the year ending September 2009. ThyssenKrupp’s relatively bullish estimate in March was met with skepticism but the size of the downgrade caused spreads to widen considerably. The firm expects the difficult economic conditions to continue in the coming months, running contrary to market expectations of a “V-shaped” recession.
Aerospace and defence group EADS added to negative sentiment in the industrials sector. The company, owner of the Airbus aircraft maker, said its operating profits were down from EUR700 million to EUR400 million excluding one-off items. The firm’s new orders were down sharply, with only 22 aircraft ordered. 420 were ordered in the same period last year. Spreads widened 9bp to 158bp on the news, though they remain 400bp tighter than in December.
Credit was again underperforming equity in the US. The Markit CDX IG index was trading at 153.25bp, nearly 4bp wider than yesterday’s close. Widening credits outnumbered tightening names, though the difference was not as great as in Europe.
One of the few sectors to post gains was oil and gas. The price of oil hit $60 a barrel earlier today before retreating in the afternoon. Exploration and production company Anadarko Petroleum was one the day’s best performers. The banking sector was mixed, with Bank of America’s sale of its stake in China Construction Bank doing little to boost the market.