This CDS report was written by Markit’s Gavan Nolan
European credit indices were flat today in a session lacking direction. The Markit iTraxx Europe index was trading at 107.5-108bp, little changed from yesterday, while the Markit iTraxx Crossover was slightly wider at 691bp. The picture among single names was mixed, with tightening/widening credits split more or less equally. However, a few names stood out.
Norwegian telecoms group Telenor was one of the worst performers today as it became embroiled in a dispute with a Russian partner firm. Bailiffs in Russia have threatened to sell Telenor’s stake in Vimpelcom, a mobile phone company and Telenor’s main investment in the country. Alfa Group, owned by one of Russia’s many billionaires, is Telenor’s partner in Vimpelcom and is unhappy with Telenor’s business in Ukraine. A Siberian court ruled in March that Telenor should pay $1.7 billion in a suit brought by a small minority shareholder. Telenor has appealed against the ruling but the move by the bailiffs has increased the risk of the Norwegian firm suffering losses. Until the situation is resolved further spread volatility can be expected. Telenor’s exposure to the region has led to a risk premium being attached to its spreads and it trades wider than most of its peers
German retailer Metro was another to widen after Arcandor filed for bankruptcy. The group was forced into administration after its request for state funds was rejected. Arcandor owns the Karstadt chain of department stores, a business that Metro has already expressed an interest in buying.
Pearson was one of the best performers today, with credit investors taking a more sanguine view on the day’s news than their equity counterparts. Arnold Schwarzenegger, the governor of California, is desperately trying to reduce the state’s gaping deficit. His latest idea is to replace traditional school textbooks with digital versions. Any impact on state finances would be cosmetic given the cost of digital e-book readers. Pearson is a major provider of textbooks to the US. But it also has a significant online offering, and Schwarzenegger’s policy – if implemented, is unlikely to hurt Pearson.
Elsewhere in Europe, Barclays was little changed following news that it is close to selling its BGI unit to Blackrock for $12-13 billion. Although the deal will improve Barclays’ tier one capital, it will deprive the group of one of its most stable and profitable divisions.
In the US the Markit CDX IG index was slightly tighter at 124bp in another mixed session. Banks rallied after the Treasury announced that 10 institutions would be allowed to repay government funds. The banks were deemed to have strengthened their balance sheets sufficiently following the results of the government stress tests. As well as banks, REITs and TMT credits were among the best performers.
US Treasuries halted their decline today. A better than expected jobs report last week triggered forecasts of a rate rise in the coming months. Such predictions may be optimistic given the depth of the recession and the still dismal state of the labour market.
The auction for General Motors will be held on 12th June 2009. More information can be found here.