Summary
- Another week dominated by sovereign debt fears causes a significant widening of CDS indices
- Activity picking up in the primary market after a dull week
- The corporate hybrid market has reopened
Headlines from the credit market this week
The current tone in the credit market – and in the financial markets in general - is quite negative after yesterday revealed negative jobless claims data in the US. The short-term direction is likely to be determined by the payroll data later today, which will either add to the worries or dampen them.
In Europe, the sovereign debt concerns will simply not go away and some contagion is taking place with Portugal and Spain getting hit. Current CDS prices in these countries point to severe concerns, but it should be noted that the sovereign CDS market is relatively thin and movements are therefore often very volatile. Both large indices trade substantially wider than last week - iTraxx Europe currently trades at 92bp, Crossover at 496bp. Since the beginning of the year the investment grade and high yield index have widened 21bp and 80bp respectively.
After a dull week activity in the primary market has picked up again albeit only modestly and with new issue premiums. The most interesting transaction was by Dutch utility company Tennet, which reopened the corporate hybrid market. After issuance, the bond performed more than three full figures and it is therefore fair to say that this could pave the way for additional hybrid issuance. Generally we stick to the view we have presented the past couple of weeks, namely that issuers will have to provide a meaningful new issue premium in order to obtain adequate interest. Thus we continue to see short-term weakness in spreads.
