Fisher moves European markets
Wednesday wasn't the greatest day for Credit markets with central bank policies driving spreads wider compared with Tuesday.
The Markit iTraxx Europe and iTraxx Crossover indices widened significantly late in the session on Wednesday, trading at 107.75bps (+3.29bps) and 439.5bps (+13.89bps), respectively.
European markets were on the defensive following comments from Richard Fisher, president of Federal Reserve Bank of Dallas, on reducing Fed's $85bn monthly asset purchase programme that it has been implementing since the beginning of 2013.
US Federal Reserve chairman, Ben Bernanke, had recently indicated that the Fed's monthly asset purchase programme may be scaled down "in the next few meetings". Bernanke had also mentioned any decision would ultimately depend on future labour market data.
Although the impact of Fisher's comments on European credit indices was greater, widening was also observed in their North American counterparts with the Markit CDX IG and CDX HY indices priced at 83.25 (+1.46 bps) and 103.7% (-0.34), respectively.
This proved that European markets are certainly more sensitive to central bank policies across globe.
Markit and the Chartered Institute of Purchasing and Supply (CIPS) published the UK Services PMI for May which increased by two points to 54.9 compared with April. This result was welcomed by credit markets as one of the few positives of the day. The UK CDS spread was pretty unchanged trading at 44bps.
Moreover, from Europe, the European Commission approved Latvia to adopt its single currency making it the 18th European Union state to use the euro.
Latvia doesn't trade that often in the CDS market and has a Markit Liquidity score of 3 (1 and 5 being the most and least liquid, respectively). The news tightened the Latvia CDS spread by 2.6bps to be priced at 117bps.
In general, corporate CDS spreads displayed a poor performance on both sides of the Atlantic on Wednesday. Telecommunications, consumer services and industrials where the worst performing sectors in Europe, while in North America industrials and technology spreads widened considerably.
Akif Ince, Markit Credit