The rally in credit and equity markets lost momentum today amid a dearth of news, either positive or negative. The Markit iTraxx Europe index was over 1bp wider at 75bp, while the Markit iTraxx HiVol was trading around 111bp, about 1.5bp wider. The Markit iTraxx Crossover index underperformed its investment grade siblings, widening by about 9.5bp to trade around 417bp.
The sovereign market has not been as eventful as last month. But it is still active, and today sovereign spreads lost ground, the first significant widening since the 25th of February. The Markit iTraxx SovX Western Europe index traded 3bp wider at 71bp today, with Greece and Portugal back in their familiar role as laggards. Greece was the main widening influence, its spreads moving back towards 300bp. There was little in the way of fresh news, and it is likely that there was some profit taking after the considerable rally (-120bp) over the last seven business day. Reports suggesting the proposed European Monetary Fund would need a new EU treaty are also negative for peripheral names.
Markit chart of UK CDS vs iTraxx SovX WE
The UK‘s spreads came under widening pressure today after the latest trade figures showed a larger deficit than expected. However, the figures were for the 3 months ending in January, and don’t take into account the significant depreciation in sterling in recent weeks. Another worrying opinion poll for the Conservative opposition also added to unease in the markets. A Times poll put the two main parties at neck-and-neck in the key marginal seats, making the worst-case scenario of a hung parliament more likely. But it should be noted that spreads are considerably tighter than February levels, with most of the bearish sentiment on the UK being played out in the foreign exchange markets.
There was a strong widening bias in European single names, with only a handful of credits tightening. Names with significant peripheral exposure, notably Hellenic Telecom and Telecom Italia, were among the weakest performers.
In North America the balance between tightening and widening credits was not quite as skewed, though the latter was again in the ascendancy. The credit markets were helped by a solid opening in the US stock markets, which also had a positive effect in Europe.
Markit’s Gavan Nolan wrote this CDS report