Downside to credit spreads materializes after Greece headlines

What’s on our mind

- General credit market news

Yesterday, the downside to credit spreads materialised following the adverse development in the Greece restructuring talks, after a weekend when the Greek Prime Minister suddenly (and surprisingly) called for a fast-track referendum to be held next Sunday. As evidenced by credit spreads, the risk of an imminent Greek default and total collapse of the Greek banking system increased immediately when the market opened yesterday. It looks as though the high stakes end-game is set to continue for now, with significant downside risk to credit spreads over the summer if a viable solution is not agreed shortly. We expect the ECB to step up QE purchases in order to mitigate any negative effect for the EUR. If this is not enough, other tools are likely to be explored. Time will tell how and when this Greek drama will end but uncertainty is here to stay for now, which is likely to imply increasing risk aversion and volatility in spreads over the summer.

Secondary market liquidity remains poor across the board up to month end and given the Greek ghost hanging over the markets. In the primary Nordic markets, we saw two high-yield issues last week, a EUR27m 5Y from the Finnish software service company Solteq and a SEK175m perpNC5 from the Swedish property company Oscar Properties.
Both Itraxx main and crossover remained very volatile last week (especially yesterday). At the deadline of this publication, Itraxx main and crossover had widened to levels of 77bp and 336bp, respectively.
This is our last Weekly Credit Update before the summer. We will be back again in mid-August 2015. We wish you all a nice summer.

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