Summary
- Credit has enjoyed a fine spell along with improved sentiment in the equity market.
- Much better than expected numbers from Goldman Sachs and JP Morgan.
- However, US bank CIT is in severe difficulties.
- Moody’s maintains negative view on the Danish banking system.
Headlines from the credit market this week
Generally, sentiment in the financial markets has been rather positive during the week and consequently credit spreads have tightened. The investment grade index, iTraxx Europe, has tightened 13 basis points compared with last week, whereas the high yield index, iTraxx Crossover, has tightened 60bp. The two indices now trade at 110bp and 710bp respectively.
The main catalyst for the positive mood is better than expected numbers from some of the large US banks (e.g. Goldman and JPMorgan). The banks seem in particular to have benefitted from strong performance in the investment bank-related businesses. The widespread access to cheap liquidity from the central banks is concurrently providing the banks with substantial earnings helping them to counter increasing loan-losses on more traditional banking such as consumer loans and mortgages. Furthermore, Goldman and JPMorgan have fared better than most others during the crisis and may therefore now be benefitting from a stronger competitive position – especially within capital market-related activities (for JPMorgan fees related to investment banking were at a record high in Q2).
In the primary market, activity has been more muted than in previous weeks with only a few larger issues launched. In Denmark, the facility service company ISS came to the market with a EUR550m bond priced at a yield of about 11% (mid-swap +815bp). For further insight on the IS deal please refer to Credit Update - ISS issues EUR525m notes due 2014.
In the coming weeks primary market activity is likely to be modest due to the summer.
