This CDS report was written by Markit’s Gavan Nolan
Credit spreads on both sides of the Atlantic widened today as investors await earnings season with trepidation. Last week’s US jobs report has knocked investor confidence, and those predicting a V-shaped recovery are finding it harder to justify their positions. The Markit iTraxx widened today to 118bp, over 3.5bp (3.1%) wider than yesterday’s close and continuing the widening trend. The HiVol and Crossover indices widened by similar amounts in percentage terms.
Among single names the sell-off was broad-based, though there was some resistance from the defensive consumer goods and telecoms sectors. Oil credits lost ground as the price of crude hit a 6-week low. The growing doubts about the strength of an economic recovery have seen the oil price retreat from $73 a barrel last month to $63 a bare today. Repsol, one of the best performers yesterday, gave back some of its gains. French supermarket Carrefour, one of the world’s biggest retailers, widened as the positive sentiment from last week dissipated. The company announced a radical cost-cutting programme that will save the firm EUR4.5 billion by 2012.
In the US the picture was much the same, with defensive credits faring better than cyclical names. Kraft Foods, Pfizer and Sara Lee, all among the best quality names in the investment grade universe, tightened, though the movements were modest. Retailers, both discount and luxury, widened amid nerves that their impending second-quarter earnings could be worse than previously thought. The energy and media sectors also performed poorly.
The Markit CDX IG index was trading around 140bp, tighter than earlier in the day but still 3bp wider than yesterday’s close.