The announcement by the Fed that it will start buying US treasuries was the main surprise during the week. Still, spreads are almost unchanged from last week although senior financials have outperformed. Activity in the primary market has been very strong. On another note, the Norwegian government has presented its plans for buying corporate bonds.
The all-important event this week was the surprise move by the Fed to initiate on buying US Treasuries. The Fed will buy up to USD300bn of longer-term US treasuries over the next six months. Furthermore, the Fed will increase its buying of mortgage-based securities by USD750bn. US yields dropped sharply following the announcement and in the credit markets CDS spreads tightened – senior financials in particular. It is a dramatic move by the Fed and it underlines how worried the central bank is about the state of the US economy.
Despite the tightening towards the end of the week, CDS indices are almost unchanged compared with last week. The investment grade CDS index, iTraxx Europe, currently trades at 188bp compared with 193bp last Friday. The high yield index iTraxx Crossover currently trades at 1110bp compared with 1080bp last week. For senior financials the index is 20bp tighter at 173bp.
