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Weekly Credit Strategy Update
Credit market showing signs of weakness
Fri, Jan 22 2010, 10:35 GMT
by Danske Research Team
Danske Bank A/S | View company's profile
Summary
- Credit market showing signs of weakness on the back of sovereign debt fears
- Significant further bank regulation on the cards in the US
Headlines from the credit market this week
Significant signs of weakness have crept into the credit market. It seems like the credit market is significantly more worried about the Greek problems than the equity market and some sort of decoupling has taken place although the equity market has also struggled during the last couple of trading sessions. As usual in times of volatility, CDS indices have underperformed cash indices. Bank indices have underperformed, which is not surprising in an environment of sovereign debt concerns given that banks and sovereigns following the wide-scale bailouts of the banking sector are deeply dependent on each other (with many banks having large sovereign exposures and sovereigns having large – implicit – bank exposures).
As was the case in March last year, CDS indices are currently somewhat dislocated with sovereigns trading at the same level as senior financials, which again are trading wider than (IG) non-financials. Normally, it is the other way around and we consider the current situation to be a reflection of a very cautious attitude among credit investors for the moment. Currently, iTraxx Europe trades at 82bp (up 8bp w/w), Crossover trades at 452bp (up 40bp w/w), the senior financial index trades at 86bp (up 12bp w/w) while the sovereign CDS index (consisting of Western European countries) trades at 86bp (up 7bp w/w). Going forward, we think that spreads could continue to be somewhat under pressure in the coming weeks – this also includes cash spreads as more sellers seem to be emerging and the primary market is under pressure (see our separate comment on the primary market below).
Published on Fri, Jan 22 2010, 10:38 GMT
Archive
- The feelgood factor is intact in the credit market
Published On Fri, Mar 12 2010, 13:47 GMT - More positive tone in the credit market
Published On Fri, Mar 5 2010, 16:03 GMT - It was a quiet week in the credit market with low activity
Published On Fri, Feb 26 2010, 13:09 GMT - Credit markets continue to be characterised by their volatility
Published On Fri, Feb 19 2010, 13:08 GMT - Another week dominated by sovereign debt fears causes a significant widening of CDS indices
Published On Fri, Feb 5 2010, 11:55 GMT
Legal disclaimer and risk disclosure
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.Related reports
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