Greece returned to the agenda today, disturbing the calm that had enveloped the markets this week. The Markit iTraxx SovX Western Europe index blew out to 74bp, 6bp wider than yesterday’s close and its widest level since the beginning of the month. The sovereign market was feeling the effects of renewed bearish sentiment surrounding Greece as the eurozone’s strategy of verbal intervention was found wanting. Germany and others in the club now appear to be warming to the idea of IMF intervention, something that was anathema only a few days ago. Some members, such as France and Spain, still seem to be strongly opposed to outside interference.
Either way, the announcement by the eurozone finance ministers on Monday, where they stopped short of offering financial assistance, now lacks credibility. This has unnerved the markets ahead of Greece’s expected bond issuance in the coming weeks. The country will struggle to reduce its deficit by offering bonds at current high yields, and it seems that external support will be necessary to bring interest costs down. Greece’s CDS spread are trading at 315bp, 26bp wider than yesterday.
The negative sentiment in sovereigns dampened the corporate market, where the main indices underperformed compared to flat stock markets. The Markit iTraxx Europe index was 1.5bp wider at 75bp, while the Markit iTraxx Crossover was trading at 415bp, 8bp wider then yesterday’s close. But the reaction was relatively muted compared to previous occasions when sovereigns have widened sharply. Tuesday’s Fed statement has encouraged long positions in risky assets, and the panic of February seems some way off.
Nonetheless the trend in the single name market was overwhelmingly wider, with financials and telecoms underperforming. Names with exposure to the peripheral eurozone countries, such as Hellenic Telecoms and Portugal Telecom, also widened.
In North America the mood was a little more upbeat. Stock markets were up, albeit modestly, and the Markit CDX IG was just 0.5bp wider at 83bp. Technology companies CSC and CA were among the worst performers amid rumours that they are possible LBO targets. They are trading around 67bp (+10) and 85bp (+15) respectively.
Markit’s Gavan Nolan wrote this CDS report