Gavan Nolan of Markit wrote this CDS report
European credit indices widened today as the appetite for risky assets showed tentative signs of waning. The Markit iTraxx Europe index widened 1bp to 84bp, and the Markit iTraxx HiVol index also widened by 1bp to close at 138bp. The Markit iTraxx Crossover underperformed by widening 9bp to close at 515bp. European stocks were up for most of the day before losing ground in the afternoon.
A weak US dollar has been partly responsible for the recent rally, so it was no surprise that its strengthening today led to a modest sell-off. US jobless claims fell more than expected last week to 502,000, their lowest level this year. The figures helped the currency to firm, as did Treasury Secretary Geithner reiterating that the government is committed to a strong dollar.
Among single names there was a widening bias, with European telecoms the best performing sector. British Telecom tightened and lifted its peers after its fiscal second-quarter results beat expectations. The UK telecoms provider has made significant progress on cost-cutting and stabilised its troublesome Global Services division. Credit investors were encouraged by the firm raising its full-year free cash flow forecast to £1.6 billion from the previous estimate of £1 billion.
British Airways was another strong performer on reports that its merger with Iberia is close to approval. TV and newspaper reports have indicated that the terms have been agreed and an announcement is imminent. BA’s spreads tightened 50bp to 435bp on the news.
The pattern was much the same in North America, with stocks down and the Markit CDX IG slightly wider. As in Europe, widening names dominated, though M&A activity meant there were idiosyncratic movements. AMD was the day’s best performer after it reached a settlement with its larger rival Intel Corp. Under the agreement, Intel has agreed to pay $1.25 billion to AMD, bringing an end to a protracted anti-trust dispute. AMD accused Intel of abusing its dominant position in the chip market.
Elsewhere in the technology sector, Hewlett-Packard widened after it announced a $2.7 billion acquisition of 3Com. The deal will make HP the second-biggest firm in the network-equipment industry and put it in direct competition with market leader Cisco.
Wal-Mart provided some support to the market by posting better than expected third-quarter earrings and raising its full-year guidance.