Summary
- The trend continues as spreads go gradually tighter
- Limited activity in the primary market
- Latvian prime minister backtracks on non-recursive loans
Headlines from the credit market this week
The strong trend we have seen recently in the credit market continues with both cash and CDS spreads going tighter. The US (and global) reporting season is in full swing and to date almost half of the companies have reported. Generally, the cost-cutting measures companies have embarked upon during the crisis continue to bear fruit and have helped companies to beat expectations. Going forward, top-line growth will be in focus as costcutting measures alone will not be able to continue to drive profitability.
Currently, iTraxx Europe and Crossover trade at 81bp and 490bp, respectively. The ongoing strong performance of the European high yield index is surprising to us considering the significant fundamental challenges that still remain and the fact that default rates are yet to peak. We therefore remain cautious on the high yield segment.
Activity in the primary market was lower compared with previous weeks. In the Nordic region, the most interesting transaction was an inaugural EUR bond issue by AP Møller Mærsk (not rated), which attracted strong investor interest.
