Credit markets were active again on Monday with continued focus on Greece and the eurozone peripherals as well as the US financials.
Greek bonds widened out early as the markets continued to consider the challenges in multiple member-states coordinating delivery of the financial aid package requested by Greece last week. Some members will have to win the approval of their parliaments before extending aid. Even with quick and prompt action on the package promised by EU leaders, the market remains anxious that a near-term restructuring is possible.
Activity seemed heavy throughout the day, with Greece CDS widening out close to 700 bps at one point. Trading in the latter half of the day though saw some profit taking that brought the spreads back in a bit tighter. Of the peripherals, Portugal saw the most significant widening, about 45 bps from Friday’s close at 315 bps.
The Markit iTraxx SovX Western European index was being quoted around 118.5 bps at the time of this report which would continue its recent trend of setting new wides.
US bank CDS also saw significant widening today based on the announcement on Sunday’s “Meet the Press” that Senators Blanche Lincoln and Christopher Dodd have agreed to include a provision that could require banks to spin-off their swap trading desks. A cloture vote on the bill could come in the Senate as early as this evening. Although there were reports that last minute negotiations could delay the vote.
While some Washington insiders suggest that the provision may not be included in the final version of the bill, the increased possibility was enough to send CDS on many of the US banks anywhere from about 15-20 bps wider. Goldman Sachs saw its spreads widen out to 162 bps, 19 bps wider from Friday. JPMorgan was a bit of an exception to the bunch only widening by 7 bps at 87 bps. This last point is a bit interesting in that JPMorgan’s CEO James Dimon said on the company’s earnings conference call that the provision could cost JPMorgan in the neighborhood of a few billion dollars if the proposal passes.
Markit’s Gavan Nolan wrote this CDS report