European credit markets were devoid of momentum today as the upcoming Easter holiday and the impending US jobs report on Friday led to inertia. Investors received an inkling of what to expect from the NFP on Friday, and it wasn’t positive. The ADP survey showed the private sector cutting 23,000 jobs in March, the lowest monthly loss since February 2008. But the figures disappointed the street, which had been expecting a gain of 40,000. The ADP is far from a perfect indicator for the NFP, though it has proved reliable in recent months. The consensus for the NFP is a gain of about 190,000 jobs. A figure well below this could ferment talk of a jobless recovery and raise questions about the strength of the US consumer. On the other hand, it will cement expectations of rock-bottom rates for the foreseeable future.
The Markit iTraxx Europe index widened nearly 1bp to 78.5bp, more or less where it finished last week. It was a similar story with the Markit iTraxx HiVol and Crossover indices, both slightly wider at 118bp and 426bp respectively. Sovereigns continued to underperform, with the Markit SovX Western Europe index 1.5bp wider at 83.5bp, 4.5bp wider than Friday’s close.
Greece‘s spreads hit 345bp, their widest levels since the end of February, in the wake of the disappointing reaction to its latest bond issue. The persistently high funding costs, despite the Eurozone ramping up its rhetoric of support, have inevitably triggered speculation that the IMF will have to step in sooner rather than later.
Another country with dire fiscal problems also saw its credit spreads widen today. Ireland‘s achilles heel, however, has been an overleveraged banking sector rather than a profligate public sector. The country’s bad bank, the National Asset Management Agency (NAMA), yesterday announced it had acquired EUR16 billion in assets from the leading banks. NAMA only paid EUR8.5 billion for the loans, the haircut reflecting the poor quality of the assets, predominantly real estate loans. Bank of Ireland, regarded as the strongest of the banks, saw its spreads tighten today, as did its weaker rival AIB. Even Anglo-Irish Bank, now a state-owned entity mired in corruption allegation, saw its spreads tighten. They will all require capital in the coming months, most of it coming from the government.
Widening names dominated the single name market, though movements were modest. Telekom Austria was one of the worst performers after S&P downgraded the firm to BBB from BBB+. The rating agency cited the company’s reliance on the declining fixed-line segment as the reason for the downgrade. Reports of a Russian group interested in taking over the company might also have affected sentiment. Telekom Austria’s spreads were trading at 88bp, about 14bp wider than yesterday.
The Markit CDX IG index was about 1.5bp wider at 87.5bp after the ADP report, underperforming flat stock markets.
Markit’s Gavan Nolan wrote this CDS report