Markit’s Gavan Nolan wrote this CDS report
Markit chart of Portgual and Greece CDS vs iTraxx Sovx Western Europe
European credit indices outpaced their equity counterparts amid expectations that a German-led bailout of Greece is imminent. The Markit iTraxx SovX Western Europe index, from which the rest of the financial markets are taking their cues, was back below 100bp at 97bp. Corporate credit also performed strongly, with the Markit iTraxx Europe index at 87.5bp, some 6bp tighter than yesterday’s close. The Markit iTraxx HiVol index was 10bp tighter at 129.5bp, while the Markit iTraxx Crossover lagged the other two indices, tightening 16bp to close at 473bp.
But all of the indices lost some of their gains in the afternoon, reflecting the uncertainty over the bailout. Mixed messages are being transmitted from various European officials; contradictions were plentiful today. Sentiment has changed for the better but there are differing views on what form the bailout will take and indeed, whether it will happen at all. Expectations have been raised for tomorrow’s EU summit, and investors will be looking for a firm plan on how to handle Greece’s predicament.
Greece ended the day around 355bp, about 30bp tighter than yesterday’s close but at the wide end of today’s trading range. Portugal fared somewhat better, tightening 35bp to close around 185bp. The mood around the name was helped by news that a new EUR3 billion issue of bonds attracted EUR13 billion in orders. The oversubscription will be taken as a vote of confidence in the name. However, Greece was similarly successful last month in selling bonds and that presaged a sharp sell-off in its debt. The EU’s actions in the coming days will be crucial for spread direction.
Unsurprisingly, the best performers among single names were credits exposed to the peripheral eurozone countries. The likes of Banco Espirito Santo and Gas Natural, which have been battered in recent days, bounced back today. However, they are still significantly wider than levels pre-debt crisis, and their fortunes will continue to be linked with their respective sovereigns.
In North America the Markit CDX IG index was nearly 2bp tighter at 100.75bp. But the overall trend among single names was wider, with Ben Bernanke’s comments to the House financial services committee weighing on spreads. The Fed chairman said that they are looking at adjusting some of the instruments on monetary policy, raising fears that policy could be come less accommodative.