Markit’s Otis Casey wrote this CDS report
With the holidays around the corner, many are looking forward to making trips home to spend time with family and friends. For those in the financial markets another reason prompted thoughts of home today–the announcement by the US Commerce Department that housing starts rose by 8.9%. As the downturn in the housing market is what touched off the global credit crisis, news of its revival would make a welcome holiday present. However, low consumer confidence due to high unemployment coupled with a lack of appreciation in property values is keeping a housing recovery from really taking root despite the administration’s efforts.
US homebuilder CDS were slightly tighter in intraday trading. D.R. Horton Inc. was over 8 bp tighter and quoted in the 210-225 bp in early trading before retreating to the 218-228 context at the time of this report. Luxury homebuilder Toll Brothers, Inc. was a bit tighter as well in the 140-150 bp range currently. UK homebuilders were tighter as well partially in response to specific buy recommendations on the shares.
Markit chart of homebuilder CDS
The key factor that has prevented the housing sector from being completely barren is the continued low level of interest rates. While no one expected the FOMC to raise rates at today’s meeting, the stock markets rallied today from yesterday’s sell-off as participants seem to be pricing in the benchmark interest rate being stable for a longer period of time. As with most FOMC meetings, market participants are watching the event closely, albeit for possible changes of tone regarding future rate direction rather than concerns about today’s result.
As the market priced in more fully expectations for stable benchmark rates, the main Markit iTraxx indices were all tighter. The Markit iTraxx Europe finished at 79.7 bp. The Markit iTraxx Crossover tightened to 472.7 bp with the vast majority of its constituents tighter as well. The Markit iTraxx Europe HiVol closed at 117.29 bp.