Summary
- Exceptionally strong performance in the credit market during the week
- Primary market activity exceptionally high
- FED senior loan officer survey suggests that the tightening in lending standards is decelerating
- Detailed results of US stress test to be published later today
Headlines from the credit market this week
It seems that the financial markets believe that we are driving out of woods at full speed. The strong rally in credit markets we saw last week has accelerated this week and both cash & CDS spreads have tightened massively. The event overshadowing everything else this week is the US banking sector stress test where detailed results are to be announced later today (more on this below).
The investment grade index, iTraxx Europe, has tightened by some 25bp since Friday and is currently trading around 120bp, while the high yield index, iTraxx Crossover, has tightened by 100bp to 710bp. We question the sustainability of such a massive rally – especially for a high yield index where defaults are yet to pick up significantly (for Europe that is). However, currently there seems to be nothing that can dampen the bullish sentiment in the market.
The positive feeling has spilled over to the primary market where activity has been extremely high during the week. Currently, new deals are oversubscribed massively (up to 10 times for some issues). At some stage the wrong name at the wrong time at the wrong price will be issued and this could somewhat dampen the mood. However, whether this happens next week or next month is uncertain, and until then, everybody in the primary market is likely to continue dancing to the current tune. From the Nordic region we saw two benchmark deals coming to the market, namely Vattenfall and Nordea.
