Posted by FT Alphaville on Dec 07 18:32.
Gavan Nolan of Markit wrote this CDS report
Credit spreads were searching for direction today as investors digested the impact of Friday’s US jobs report. The Markit iTraxx Europe index was flat at 80.7bp, recovering from a small measure of widening earlier today. The Markit iTraxx HiVol and Crossover indices performed slightly better, though at 122bp and 492bp respectively they were little changed from Friday’s close.
The rally in risky assets has been fuelled, at least in part, by the persistent weakness in the dollar. But Friday’s better than expected non-farm payrolls report led to the dollar gaining and it has continued to appreciate today. The currency movements have stalled momentum in equity and credit markets, though they have held up well today given the changing circumstances. Interest rate expectations have adjusted to the report but rates are still expected to stay low for some time and remain supportive of risky assets.
Greece was back in focus today after S&P placed the sovereign’s A- rating on negative CreditWatch. The agency expressed doubts that the government’s fiscal policies will deliver a sustained reduction in the budget deficit and national debt burden. Of course, this view has been shared by the CDS market for some time, with spreads widening significantly in recent months. But the threat of a downgrade to BBB+ added to negative sentiment on Greece. If the downgrade is implemented it will be the member of the eurozone to have a rating below single A.
Portugal also widened today after S&P placed its A+ rating on negative CreditWatch. It is now trading 16bp wider than the Markit iTraxx SovX WE index, the highest differential since the index began trading in September.
In North America the Markit CDX IG index was nearly 2bp wider at 97.5bp, outperforming lacklustre equity markets. Among single names the picture was mixed, with tightening names outnumbering widening credits by a small margin.
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