European credit markets started the week on a low note, underperforming weak equity markets. The trend accelerated later in the session after the US markets opened down. The Markit iTraxx Europe index widened to 76.25bp, about 2.5bp wider than Friday’s close, while the Markit iTraxx Crossover was 13bp wider at 424bp.
The sovereign market was quiet, with the Markit SovX Western Europe lagging the single name market. The index was about 3bp wider than Friday’s close, a weak performance given that most of the underlying constituents were unchanged. Greece’s spreads stayed around the 290bp mark, weekend reports of an imminent announcement on EU support measures have little effect. Negative sentiment around the UK continues to be played out in the currency markets, UK sovereign CDS unmoved by weekend events. Opinion polls continue to point towards a hung parliament, with the Tories lead narrowing further. Comments from MPC member Kate Barker, suggesting the current quarter could be negative in terms of growth, also weighed on sterling.
Among single names there a clear widening trend. Only a handful of names tightened, most of them in defensive sectors. Resource-related credits such as ArcelorMittal, Glencore and Anglo American lost ground amid fears that a tightening in Chinese monetary policy could affect demand for their goods. Relatively hawkish comments from Chinese premier Wen Jiabao added to the unease created by higher than expected inflation figures released last week.
Widening credits also dominated in North America, with the Markit CDX IG index trading around 1.5bp wider at 85bp. Cyclical credits underperformed, with financials and technology names losing ground. Boston Scientific was the day’s weakest performers, its spreads widening sharply after it announced that it was suspending sales of its implantable heart defibrillators. The company said it had failed to inform regulators of changes made to how it manufactures the products. The defibrillators account for 15% of Boston’s revenue and the suspension could damage its reputation, potentially hurting sales of its other products.
Markit chart of Boston Scientific 5-year CDS