The credit market has opened strongly in 2009 with CDS indices moving significantly tighter. As expected, the primary market has been flooded with new issues and so far these have been massively oversubscribed, which is positive. In Denmark the negotiations on a new bank package have commenced but no details have been disclosed to the public yet.
The credit market has enjoyed a strong opening to 2009 with a significant spread tightening. CDS indices have tightened markedly and currently, the investment grade index iTraxx Europe trades at 160bp compared to 180bp on the last trading day before Christmas. The high yield index iTraxx Crossover currently trades at 960bp compared to 1003bp before Christmas. Also the cash market has enjoyed a fine start to the year with more buyers emerging.
One of the questions for 2009 is whether an asset allocation movement into credit will take place. We believe that this will be the case (some large asset managers have pointed towards credit as their preferred asset class for 2009) and that cash credit will benefit from this. In this respect it is interesting that Germany experienced problems with an auction for 10Y Government debt while the corporate issues we have seen this week have been massively oversubscribed (see below).
