CDS report: Indices rebound after US jobless claims tumble

Discussion in 'Economics' started by ASusilovic, Jul 9, 2009.

  1. This CDS report was written by Markit’s Gavan Nolan

    Credit indices rebounded today following Alcoa’s better than expected results and a positive surprise from US jobless claims figures. The Markit iTraxx Europe index closed at 120.5, nearly 3bp (2.2%) tighter on the day. The Markit iTraxx HiVol and Markit iTraxx Crossover indices both outperformed the main investment grade index, tightening by 3.3% and 2.9% respectively.

    The Bank of England kept rates on hold at 0.5%, as expected. But it did catch investors off guard by not expanding its quantitative easing programme. The central bank was expected to increase the bond buying programme from £125 billion to £150 billion, the maximum allowed under current rules. The bank’s own figures show that bank lending has yet to recover, and the refusal to authorise more purchases was surprising. However, the announcement had little impact on spreads, though it did trigger large movement in gilts and sterling.

    The Bank of England is practising the new art of macro-prudentialism by easing off on QE, but this may be only a pause.

    It makes sense for the Bank to take a break. The world economy seems to be on the mend. The International Monetary Fund has raised its growth forecasts for next year. Investment bank bonuses are back; so too are 125 per cent mortgages in the UK and the US. Monetary stimulus is still being poured onto the incipient recovery via near-zero interest rates. And many wonder whether QE even really worked. In the UK, 10-year gilt yields remain much the same as before QE began in March, even though the Bank has bought bonds almost as fast as they were minted since then.

    If you are not familiar with expresions like "positive surprise", "to be on the mend" and "raising forecasts" should reconsider your Armageddon language and take a second look at FED, BoE, ECB and BOJ policies - by the way, the most powerful central banks worldwide.