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Weekly Credit Strategy Update
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Spreads are taking a breather
Fri, Apr 25 2008, 13:00 GMT
by Danske Research Team
Spreads are taking a breather after weeks of massive spread tightening. Q1 reports from monoliners (Ambac) are negative for shareholders but somewhat positive for the credit markets. Primary markets are functioning again.
Spreads are taking a breather
After weeks of heavy tightening, credit spreads seem to have stabilised around the current levels. European investment-grade credit spreads in iTraxx Europe (-6bp) and high yield credit spreads in iTraxx Crossover (-18bp) are slightly tighter this week, currently trading around 80bp and 460bp, respectively. Cash bonds have this week tightened more than CDS spreads.
Weak Q1 results from Ambac are somewhat positive for credit markets
On 23 April, 2008 Ambac issued its Q1 08 report, in which it stressed that its capital is exceeding S&P’s AAA target level. Moody’s has put Ambac on Negative Outlook on its AAA rating, however Ambac is expecting to meet Moody’s AAA capital target in Q2 08. Furthermore, in Q1 08, Ambac continued to generate positive operating cash flow; although mark-to-market losses on CDOs and loss provisions related to RMBSs guarantees were substantial and bigger than anticipated.
With cloudy earnings outlook and limited new business, the Q1 results are clearly negative for the shareholders. For the credit markets, the report is somewhat positive, with the stated capital levels and the subsequent AAA rating affirmation from S&P.
Published on Fri, Apr 25 2008, 13:03 GMT
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