Creditflux Newsletter

Yesterday’s credit spread widening pushed iTraxx Europe out above 125bp and Crossover to around 470bp, according to Markit, with bank credits hit hard as sovereign concerns continued to mount. SovX closed above 300bp for the first time, at 306bp.

The weak tone carried over to US trading, although flows were said to be light and participants reluctant to put on shorts given the likelihood of further headline risk. CDX IG closed 2bp wider at 99bp and HY fell half a point to just below 100. As in Europe, US financials underperformed, with both MBIA holdco and opco credit default swaps heading three points wider after MGIC reported a second quarter loss on mortgage claims.

Today credit spreads are back on a rally in Europe, however, with Greece the only SovX constituent still widening sharply. Conversely, Italy and Spain are both over 25bp tighter, with the latter selling €4.4 billion of 12- and 18-month T-bills at the top end of its targeted range – albeit at an elevated cost.

Italian and Spanish banks are rallying sharply as well, leading the charge tighter in iTraxx Europe. UniCredit, Banca Monte dei Paschi, Intesa Sanpaolo, Santander and BBVA are all 20-30bp tighter from the open, according to Markit.