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Weekly Credit Strategy Update

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The crisis seems to be affecting Europe on a larger scale

Fri, Oct 3 2008, 12:48 GMT
by Danske Research Team

Danske Bank A/S

Money market distress continues and the crisis seems to be affecting Europe on a larger scale, with Fortis, Bradford & Bingley and several other banks in need of help. Today, all eyes will again be on the fate of the US bailout package. If successful, it is likely to contribute to an easing of conditions in the money markets and distress at the banks. If not, we are probably in for an even rougher ride in the weeks ahead.

Deal or no deal – that is still the question. After the House rejected the first proposal on a bailout package on Monday, the Senate approved an amended version later in the week. Consequently, the House will vote again later today on this revised package.

This aside, it has been an extremely eventful week once again. The main overall tendency is that Europe also now appears to be taking massive hits (when the US sneezes, Europe catches a cold). In Europe we have therefore seen a number of governments providing various forms of explicit or vocal support to banks or banking systems during the week.

Spread movements continue to be large for CDS while cash bonds are still completely illiquid and awaiting problems in the money markets to be resolved. Currently, iTraxx Europe trades at 130bp while crossover trades at 606bp. Last Friday the two major indices traded at 117bp and 596bp respectively. Also worth noticing is the fact that the senior financial index is now trading wider than the corporate index.

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Published on  Fri, Oct 3 2008, 12:53 GMT