We move from overweight to neutral on credit

Weekly Credit Strategy Update

Summary

CDS indices have moved sideways while cash bonds continue to perform
In the EUR market we have seen the first non-investment grade benchmark issuance
We move from overweight to neutral on credit following the strong rally we have seen in the last few months

Headlines from the credit market this week

CDS indices are more or less unchanged compared to last week. The investment grade index, iTraxx Europe, currently trades at 122bp compared to 123bp last week, while the high yield index, iTraxx Crossover trades at 727bp down from 750bp. The cash market continues to perform strongly and it remains difficult to find offers.

During the week it was announced that Bradford & Bingley will defer on coupon payments for its LT2 issues. The move was not a total surprise after the UK authorities in February decided to amend the bond documentation on the subordinated bonds (for info on the change in the bond documentation please refer to the Weekly Credit Update from 27 February 2009). Back then this caused an extremely negative reaction in the Tier 2 due to general fears that bond documentation could not be relied upon. This time around the reaction has been more muted.

Despite the somewhat lukewarm sentiment in the secondary market during the week we have continued to see high activity in the primary market. Worth noticing is that Pernod-Ricard issued a benchmark non-investment grade bond, which was massively oversubscribed. Therefore it is safe to say that the EUR high yield market is now officially open after a few smaller issues lately. In the US the high yield market has already been open for some time.

Download full Weekly Credit Strategy Update with charts

Published On Fri, May 29 2009, 14:13 GMT

About this Report

Danske Bank A/S

http://www.danskebank.com/

danskeresearch@danskebank.com

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