Strong start to second-half
The second-half of the year started on a positive note in the credit markets, with spreads tightening significantly.
The rally was helped by better than expected Markit manufacturing PMIs from the eurozone's periphery. Spain's survey, in particular, was encouraging: new orders increased for the first time since April 2011.
There were also signs of stabilisation in Italy, where production rose for the first time since September 2011.
Credit markets welcomed the news. The Markit iTraxx Europe was almost 5bps tighter at 114.75bps, and the Markit iTraxx Crossover rallied by 16.5bps to 460bps.
However, downbeat PMIs from China tempered any optimism. The Markit/HSBC China Manufacturing PMI came in at 48.2, down from 49.2 the previous month, and the state-sponsored PMI was also down.
Recent turmoil in the interbank market has raised questions about growth and the stability of the Chinese model, and it is likely that will weigh on the global economy in the months ahead.
Concerns about China, and a possible end of the commodities "super-cycle", have led to mining credit underperforming in recent weeks. BBB commodity names have widened considerably since the Fed signaled that it intended to taper QE, while defensive sectors such as utilities - while not unscathed - are still tighter than where they started the year.