"CDS report: “Mr Geithner has said the world will be fine”
The cost of insuring against the possibility of default on Japanese bonds fell dramatically on Thursday, as the market reopened after a three-day holiday to greet a wave of positive sentiment. Tightening in the CDS market was accompanied by sharp gains amongst Japanese equities amid optimism that the country’s economy was beginning to shake off the worst of the global recession.
The iTraxx Japan Series 11, which comprises 50 of the top investment-grade Japanese entities, traded at 225 and 263 basis points, significantly lower than Friday’s level of 320bp and less than half the the 565bp level seen in mid-March.
Meanwhile, the Markit iTraxx Europe, which tracks the continent’s 125 most liquid investment-grade names, maintained this week’s trend for the week by tightening in early trading.
Comments by US Treasury Secretary Timothy Geithner suggesting that no US bank subjected to stress testing, details of which are due to be announced later on Thursday, was facing the risk of insolvency, helped sentiment.
The Markit iTraxx Crossover index, which tracks junk-rated and the lowest investment-grade rated bonds in Europe, was around 728bp, 42bp tighter than the previous evening.
The cost of protecting against debt defaulting in emerging markets plunged as appetite for risk rose, with Russian credit default swaps falling roughly 10 per cent to 271bp from Wednesday’s close of 302.
Mehernosh Engineer, senior credit strategist at BNP Paribas, said, “Mr Geithner has said the world will be fine. We should all get back to partying.”