European credit default swaps widen on worries over banks

Discussion in 'Economics' started by ASusilovic, Apr 21, 2009.

  1. European credit spreads widened on Tuesday amid growing concerns about bank losses and worries over US company results.

    Markit’s investment grade index, the iTraxx Europe index, widened to 156 basis points - a 2bp rise from Monday’s London close.

    Markit’s mainly high-yield index, the iTraxx Crossover index, widened to 870bp - a 10bp rise from Monday’s close.

    Each basis point is equivalent to a cost of $1,000 to insure $10m of bonds against default annually over five years.

    The credit default swaps market is largely taking its lead from the stock markets, which tumbled on Monday after Bank of America reported a big jump in non-performing assets in the first quarter.

    Strategists say the deteriorating sentiment in the credit markets is a warning sign that the worst of the financial crisis may not be behind us, as many market participants had hoped, following the six week rally which has seen credit spreads narrow sharply. The iTraxx Europe index rose to 205bp at its peaks in early March.

    Traders said the widening in spreads was also due to some profit taking after big advances since early March.

    US regulators are expected to release the way they plan to stress test banks on Friday, which is also weighing on the market.