Markit’s Gavan Nolan wrote this CDS report
European credit indices resumed their rally after yesterday’s brief hiatus. But the spread tightening was modest compared to movements earlier this week, and the rally in both credit and equity markets lost momentum in the afternoon. The Markit iTraxx Europe index was trading around 92bp, marginally tighter than yesterday’s close. The Markit iTraxx HiVol index was stronger at 155bp, around 2.5bp tighter, while the Markit iTraxx Crossover was 2.5bp tighter at 568bp.
US aluminium company Alcoa provided the impetus for the rally, which was more pronounced among single names. The firm announced a surprise profit after the close yesterday, giving investors hope that the third-quarter earnings season will support current valuations. Unsurprisingly, mining credits led the market tighter, with Xstrata and Anglo American among the best performers. Other cyclical credits, such as autos and retail, also enjoyed strong sessions.
Ladbrokes‘ spreads tightened sharply after the betting shop owner announced a deeply discounted rights issue. The firm said the funds from the share offering will reduce net debt to £687 million from £962 million, an action welcomed by credit investors. Shareholders were less enamoured by the rights issue announcement, as well as the company’s drop in profits. Ladbrokes blamed the unusually low number of draws in the Premier football league this season – punters typically bet on a win. The trend has sparked speculation over whether a new “win at all costs” mentality is now being followed by Premiership clubs, though last week’s results – 50% of matches were drawn – suggests it is too early to establish if it is a lasting trend.
Tightening names dominated in the US, though not to the same extent as in Europe. The Markit CDX IG index was a little wider at 103.5bp, increasing the skew to single names slightly. Alcoa’s upbeat results were buttressed by better than expected same-store retail sales figures. Over 70% of companies beat consensus forecasts, according to Retail Metrics, an independent research firm. Department stores fared well, with Kohl’s, JC Penney, Macy’s and Nordstrom, to name but a few, posting solid results. Discount stores such as TJX continued to show strong performance.
Liz Claiborne, long considered one of the more vulnerable credits in the retail sector, tightened sharply after it announced agreements to sell some of its brands exclusively through JC Penney and shopping channel QVC. The apparel firm has rallied this week amid rumours that it is preparing to sell one of its major brands