Weekly Credit Strategy Update
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The most dramatic week ever in the credit market
Fri, Sep 19 2008, 13:35 GMT
by Danske Research Team
It has probably been the most dramatic week ever in the credit market. Lehman Brothers defaulted at the weekend while Merrill Lynch was acquired by Bank of America. More importantly, AIG was at the centre of a massive Federal bailout. In the UK, deep concerns centred on HBOS before Lloyds announced its takeover. By the end of the week markets rallied following news from the US that the authorities are aiming to set up a fund that could acquire banks’ distressed assets.
No more bailouts – or? Just as we thought that the US government had drawn a line in the sand, the rescue of AIG showed that some institutions are indeed still ‘too big to fail’.
This week has probably been the most eventful ever in the financial markets and consequently volatility has been excessive. In the overnight money market, the offer side more or less disappeared. The malfunctioning money markets remove the link between central bank rates and the real economy (hence the Fed’s decision to keep interest rates unchanged was totally irrelevant in the current environment). It also illustrates that banks are hoarding cash and that counterparty risk is substantial.
The widest (intraday) point in iTraxx Europe was recorded on Tuesday when it reached 158bp compared with last Friday’s quote of 100bp. Currently iTraxx Europe trades at 115bp while crossover trades at 573bp. Naturally, the activity in the primary market has been non-existent as volatility has been the name of the game.
Published on Fri, Sep 19 2008, 13:38 GMT
Archive
- The support package from the US Government to Citigroup kicked off the week in style
Published On Fri, Nov 28 2008, 13:12 GMT - The US auto makers are in severe distress
Published On Fri, Nov 21 2008, 13:00 GMT - Money markets seem to be on the right track
Published On Fri, Nov 14 2008, 11:33 GMT - Central banks in Europe have lowered interest rates
Published On Fri, Nov 7 2008, 13:23 GMT - Money market conditions improved after a US rate cut and dollar swap lines were expanded to emerging markets
Published On Fri, Oct 31 2008, 13:04 GMT
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