Tuesday, May 19, 2009

”The CDS market is following the feel good factor coming from equities outside Europe,”

TO BE NOTED: From Alphaville:

CDS report: Factoring in ‘feel good’

The cost of insuring European corporate debt against default dropped sharply on Tuesday, as credit spreads tightened amid a rally in global equity markets and rising sentiment that the recession may have passed its peak.

The recent spate of companies seeking to tap the bond market gained weight as more investment-grade names lined up to take advantage of the more positive mood sweeping over the financial markets.

Following a host of companies, including the French cement group Lafarge, to announce issues on Monday, Carlsberg Breweries said it plans to sell a five-year eurobond and a 7.5-year sterling bond.By mid-morning the flagship Markit iTraxx Europe, which tracks the 125 most liquid names in the investment-grade class, had clawed back last week’s losses to trade tighter by 10 basis points on the day at 125bps.

Similarly the Markit iTraxx Crossover index, home to the 45 most traded names in the junk-rated sphere, moved sharply tighter. The index, having traded at over 800bps late on Friday, fell by more than 30bps on the day to trade at 757bps, down from 789bps at close on Monday.

The upbeat mood in Europe came on the back of a rally in the US - which later spilled over into Asia - triggered by better-than-expected results from Lowe, the home improvement retailer.

In Japan, spurred on by the bounce in Tokyo shares, the cost of insuring against the possibility of default on the Itraxx Series 11 index fell to 225 bps, compared to 245 at the end of Monday.”The CDS market is following the feel good factor coming from equities outside Europe,” said Mehernosh Engineer, a senior credit strategist at BNP Paribas.

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