Summary
- It has been a strong week in the credit market with spreads moving substantially tighter.
- The result of the US banking sector stress test has been postponed until the end of next week.
- ECB bank lending survey suggests that the tightening in lending standards is decelerating.
Headlines from the credit market this week
The good feeling in the financial markets continued this week and CDS indices have moved substantially tighter. The investment grade index, iTraxx Europe, has tightened by some 15 basis points during the week and is currently trading around 137bp, while the high yield index, iTraxx Crossover, has tightened by 40bp to 800bp. Thereby, the market remains unnerved about the news that Chrysler will file for Chapter 11. The company will now seek to restructure itself (a merger or corporation with Fiat is being mentioned as an option).
The next market mover is likely to be the announcement of the results of the stress test of the US banking system. It was widely expected that results were due to be published on Monday but it seems that we will have to wait until Friday next week. Rumours have been circulating (e.g. in WSJ) that six banks (out of 17) including Citigroup and Bank of America will have to raise additional capital following the stress test. We believe that the market has not fully discounted the risk that the stress test may reveal that many banks are still under severe pressure. Thus in the short term we see risks skewed to the downside (mostly in CDS).
Primary market activity continues to be high and from the Nordic region we saw two benchmark deals coming to the market namely DONG Energy and SEB.
