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EURO CORP-Credit spreads steady despite equity gloom
Reuters: [2008-05-09 16:47:00]
By Richard Barley
LONDON, May 9 (Reuters) - European credit spreads were little changed on Friday, widening initially and then staging a small rally late in the session, despite a gloomy day for global equities in the wake of a big loss by U.S. insurer AIG <AIG.N>.
By 1430 GMT, the investment-grade Markit iTraxx Europe index <ITRAC5EA=GFI> was at 80 basis points, according to Markit data, unchanged versus late on Thursday. The index is 16 basis points wider versus last Friday.
The iTraxx Crossover index <ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, was 4 basis points wider at 458 basis points. The Crossover is some 60 basis points wider versus last Friday.
The link between credit and equity markets has been broken in recent sessions after a long period in which prices moved in tandem, with credit having sharply outperformed stocks over that time.
"We've gone wider over the last few days and decoupled from stocks a little bit," said a trader in London, adding that flows on Friday were light.
"We're just seeing some bids get hit now and we may have a little rally into the close."
Many analysts have warned the huge tightening in credit spreads seen since the rescue of Bear Stearns <BSC.N> in mid-March had overrun, with the Europe index tightening by over 100 basis points and the Crossover index breaking back below 400 basis points, albeit briefly.
The hunt is now on for signs of economic disruption in the wake of the financial system crisis.
Strategists at BNP Paribas said on Friday the U.S. Federal Reserve's senior loan officer survey this week and the increase in the type of collateral it would accept in liquidity facilities showed this was happening.
"The message is very clear that we are now entering the next phase of the credit crunch as credit is increasingly being rationed to the real economy by the financial system," they wrote in a note to clients.
"The recent underperformance of non-financials versus financials and a drop in earnings and earnings expectations is evidence that the market is moving away from systemic risk to single-name credit risk."
Adding to that picture, the European Central Bank said on Friday euro zone banks were making it harder for companies and households to borrow money. [ID:nL09409883].
However, the primary corporate bond market this week saw continued good activity, although the U.S. market dominated as drugmaker GlaxoSmithKline <GSK.L> issued $9 billion of debt there, drawing nearly $18 billion of orders.
Analysts said the good demand for new issues was reassuring and showed that despite the widening in credit derivatives spreads, investors still had appetite for corporate debt. (Reporting by Richard Barley; editing by Sue Thomas)
((richard.barley@reuters.com; +44 20 7542 7770; Reuters Messaging rm://richard.barley.reuters.com@reuters.net))
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Keywords: MARKETS BONDS EUROCORP
EURO CORP-Credit spreads widen as stocks fall, trading thin
Reuters: [2008-05-09 10:38:00]
By Maya Thatcher
LONDON, May 9 (Reuters) - European credit spreads nudged wider on Friday, as European and Asian equities fell into the red after U.S. insurer American International Group <AIG.B> posted its largest ever quarterly loss.
"It's on the back of weak equities in Asia," a London-based trader said.
By 0820 GMT, the Markit investment-grade iTraxx Europe index <ITRAC5EA=GFI> was at 81 basis points, according to Markit data, 1 basis point wider than late on Thursday.
The iTraxx Crossover index <ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, was 10.5 basis points wider at 464.5 basis points.
"(The market's) slightly negative because the offers on CDS (credit default swaps) are pulling back and the bids are a couple wider, but it's not a return to panic stations," another trader said.
"It's probably going to be rangebound, because there's not a lot of data out in any case. (But) we're unlikely to return to the tight levels we saw last week," he said.
The first trader said a number of factors had deterred market players from holding risky positions.
"I don't know what the market is playing at at the moment ... Equities closed slightly higher in the U.S., but Bunds futures gained a full point over the whole day ... The U.S. dollar and the euro are pretty much unchanged," the trader said.
"Credit has been creeping wider over the last three or four days, whilst equities have been pretty stable. It's all strange," he said.
Traders said single name CDS, including Dutch supermarket Ahold <AHLN.AS>, were trading in line with the credit indexes and were largely unchanged by news of a bigger-than-expected drop in first-quarter sales. [ID:nWEB4517]
In the cash bond market, the FTSE Euro Corporate Bond Index <EUCRAVSPG=> showed investment-grade corporate bonds in euros yielding an average 114.9 basis points more than similarly dated government bonds, 0.7 basis points more on the day.
In underlying government bond markets, the yield on the interest rate sensitive two-year Schatz <EU2YT=RR> was 3.658 percent, 5.7 basis points less on the day. The 10-year Bund <EU10YT=RR> yielded 4.030 percent, 3.7 basis points less.
The 10-year euro swap rate <EURAB6L10Y=> was 4.478 percent. (Reporting by Maya Thatcher, editing by Will Waterman) ((maya.thatcher@reuters.com; +44 207 542 9202; Reuters Messaging: maya.thatcher.reuters.com@reuters.net))
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Keywords: MARKETS BONDS EUROCORP
EURO CORP-Credit spreads continue drift wider
Reuters: [2008-05-09 08:55:00]
LONDON, May 9 (Reuters) - European credit spreads continued to drift wider on Friday, but with thin macro-economic data due, traders expect the credit derivatives indexes to trade within a limited range.
By 0643 GMT, the Markit investment-grade iTraxx Europe index <ITRAC5EA=GFI> was at 81.5 basis points, according to Markit data, 1.5 basis point wider than late on Thursday. The Europe index has widened nearly 20 basis points since last Friday's close.
The iTraxx Crossover index <ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, was 11 basis points wider at 465 basis points.
"I don't expect a big widening ... I think we will bounce between 455 and 475 (basis points)," a trader said. "It's the end of the week."
Bookies anticipate European shares will open lower. (Reporting by Maya Thatcher, editing by Will Waterman) ((maya.thatcher@reuters.com; +44 207 542 9202; Reuters Messaging: maya.thatcher.reuters.com@reuters.net))
Keywords: MARKETS BONDS EUROCORP
EURO CORP-Credit spreads widen, SEC's bank plans stir market
Reuters: [2008-05-08 17:06:00]
By Natalie Harrison
LONDON, May 8 (Reuters) - European credit spreads widened on Thursday, but volumes were relatively thin and news flow muted, which gave little conviction to the move.
By 1452 GMT, the investment-grade Markit iTraxx Europe index <ITRAC5EA=GFI> was at 81.5 basis points, according to Markit data, 6.5 basis points wider than late on Wednesday.
The iTraxx Crossover index <ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, was 21 basis points wider at 454 basis points.
Spreads initially moved wider after a sell-off in U.S. stocks overnight on concerns that a plan by the U.S. Securities and Exchange Commission to improve transparency among top investment banks would hurt sector earnings.
But analysts said there was little eventful news to really stir markets and that spreads could just as easily tighten again.
"There's not a lot of movement today. Spreads have been very quiet," said Magdalena Malinowska, a credit strategist at Barclays Capital. "It's been pretty flat and uneventful."
Traders also said trading volumes were thin, with no reaction in spreads to expected decisions by the European Central Bank and the Bank of England to keep rates on hold on Thursday.
"There is very little volume in credit default swaps, but there is more bond activity, so the balance has definitely shifted in the last couple of weeks. Market lubrication is coming back," the trader said.
A flood of issuance has boosted confidence, with "a lot of pent up demand snapping up cheap bonds", the trader said.
"That money is now being put to work. It's a very healthy sign. Now that we've come back to more sensible CDS levels, people are more confident that what they are buying has value."
The primary market did slow on Thursday, though Network Rail finalised the terms of a bond deal it announced late on Wednesday. Network Rail, the operator of Britain's rail infrastructure, raised $ billion through a 5-year bond [ID:nL08774698].
The borrower, like many of the recent issuers, was also able to tighten guidance in a sign of strong demand.
In the broader market, strategists at Barclays said it was quite likely that the Markit iTraxx benchmark indexes would stay range-bound in the near term at least.
"Credit is priced close to perfection at the moment; we can't go much tighter than these current levels. But in the lack of key negative releases or drivers, it's very probable that we will trade rangebound for a while," said Malinowska. (Editing by Will Waterman) ((natalie.harrison@reuters.com; +44 207 542 2687; Reuters Messaging: natalie.harrison.reuters.com@reuters.net))
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Keywords: MARKETS BONDS EUROCORP
EURO CORP-Norske Skog leads credit spread widening
Reuters: [2008-05-08 10:59:00]
By Maya Thatcher
LONDON, May 8 (Reuters) - The cost of insuring Norske Skog's <NSG.OL> debt against default soared on Thursday after the Norwegian papermaker reported a fall in quarterly earnings that was larger than predictions.
In the broader markets, European credit spreads widened in line with slumping global equities after the U.S. Securities and Exchange Commission revealed a plan for improving transparency amongst top investment banks.
"The U.S. equity market having a bit of a bad session has obviously had an impact on us," a trader said.
Five-year credit default swaps on Norske Skog shot up 100 basis points to between 1,025 basis points and 1,050 basis points, traders said. Norske Skog said its earnings had to been hit by weak prices, rising materials cost and currency factors. [ID:nL07710638]
"(Norske Skog) did say that they were going to be bad, but then they were even worse than they said they were going to be," one of the traders said.
The news knocked other paper makers' CDS. Five-year CDS on Stora Enso <STERV.HE>, the world's top paper and board maker, widened 25 basis points to 300 basis points, while CDS on magazine papermaker UPM-Kymmene Oyj <UPM1V.HE> were 20 wider at 270 basis points, the trader said.
Elsewhere, the Markit investment-grade iTraxx Europe index <ITRAC5EA=GFI> was at 78.75 basis points by 0815 GMT, according to Markit data, 3.75 basis points wider versus late on Wednesday.
The iTraxx Crossover index <ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, was 12 basis points wider at 445 basis points.
The Bank of England and the European Central Bank will announce decisions on interest rates later in the session. Although both are expected to keep rates steady, market players will scrutinise the banks' following statements for indications of future rate changes and signs of the health of the global economy.
LESS SMOKE AND MIRRORS
The SEC's plan for top Wall Street firms to publicly disclose their current liquidity and capital positions was taken pessimistically by markets, as fears over the potential impact on profit outlooks weighed on U.S. shares, according to strategists. [ID:nL08639867]
"It is quite strange that investors reacted so negatively to this announcement, as they should be happy to know what the banks are doing with their money," credit strategists at UniCredit (HVB) wrote in a note to clients.
"But obviously, the market fears that things that will be disclosed might not be too appealing."
Deutsche Bank credit strategist Jim Reid said he too was surprised by the market's reaction.
"This move is clearly aimed at helping prevent another Bear Stearns situation," he wrote in a note to clients. "With financials having to disclose more it may force them to have a higher level of capital in the first place ... There should be less smoke and mirrors too."
"This should ultimately be a more positive financial credit story than an equity one even if both sold off last night," Reid wrote.
In the cash bond market, the FTSE Euro Corporate Bond Index <EUCRAVSPG=> showed investment-grade corporate bonds in euros yielding an average 113.2 basis points more than similarly dated government bonds, 0.9 basis points more on the day.
In underlying government bond markets, the yield on the interest rate sensitive two-year Schatz <EU2YT=RR> was 3.744 percent, 4.0 basis points less on the day. The 10-year Bund <EU10YT=RR> yielded 4.135 percent, 4.9 basis points less.
The 10-year euro swap rate <EURAB6L10Y=> was 4.555 percent. (Editing by David Cowell) ((maya.thatcher@reuters.com; +44 207 542 9202; Reuters Messaging: maya.thatcher.reuters.com@reuters.net))
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Keywords: MARKETS BONDS EUROCORP
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