It has been a relatively quiet week, but quiet isn’t necessarily good. Indeed, spreads have been drifting wider all week driven by the financial sector, especially insurance. The major events this week were the poor results from French insurer Aviva, and the rate cut at ECB. No real ray of light so far in the credit markets.
All indices have widened during the week despite the lack of fundamental news in the credit markets. Financial indices blew up driven by last week’s subordinated debt topics, continued pessimism about banks’ operating results and a sudden orientation towards the insurance sector. French insurer Aviva delivered a very poor result on Thursday morning, driving almost every insurance spread wider. Out of sight, out of thought, so to speak. Insurance has been the forgotten sector and with focus shifting to this sector, the financial turmoil takes its toll. Worth noting is that financial spreads are now wider than when Lehmann collapsed.
The investment grade CDS index, iTraxx Europe, currently trades at 205bp compared to 180bp last Friday. The high yield index iTraxx Crossover currently trades at 1144bp compared to 1080bp last week. Itraxx Senior financials trades around 200bp compared to 160bp a week ago, and Itraxx Sub financials trades at 370bp versus 293 a week ago.
Spreads were also hurt by renewed rumours on a GM bankruptcy and an ING nationalisation. Furthermore, GE was rumoured to be downgraded following increased pressure on its financial arm. GE still holds a triple-A rating but with negative outlook.
