It seems that the credit markets are in the midst of one of their quietest periods for some time as investors look to consolidate after the recent rally, according to Markit Credit Research. Market participants didn’t seem to pay any attention to neither Egypt or Europe, Wednesday. However, the fear of contagion in both areas is still very much present.
“The contagion effect is still there, but was not as noticeable as it was last week.”
The sovereign CDS spreads widen again today. The Markit iTraxx CEEMA index still underperformed the Markit iTraxx SovX Western Europe, giving back some of the ground it made up over the last few days. But elsewhere the market was directionless.
Omar Suleiman, the vice-president who has emerged as the apparent power-broker, warned that Egypt could face a disastrous coup if talks aren’t successful and disorder continues.
The protests in Cairo are entering their third week and the masses have now gathered outside parliament. And so far there has been little sign of the protest fatigue that the authorities appear to be counting on.
“The contagion effect is still there, but was not as noticeable as it was last week,” credit analyst Gavan Nolan writes in his daily summary.
The Markit iTraxx Senior Financials index bounced back after widening in the previous two days.
“The sovereign market had negligible impact, and the relatively thin liquidity in the index probably contributed to the swings, according to traders,” Markit reports.
Speculation that Axel Weber’s decision to not stand for a second-term as Bundesbank president, rules him out of the ECB presidency may also have helped peripherals. Weber is a vocal opponent of the ECB buying peripheral debt, and him leaving the race to succeed Trichet could be interpreted as a positive development for the euro zone stragglers.
But it is not clear that Weber has ruled himself out – and even if he does, it is not given that a more dovish candidate will become fill the position.
- Markit iTraxx Europe 96bp (+1), Markit iTraxx Crossover 396bp (+4.5)
- Markit iTraxx SovX Western Europe 168bp (-3)
- Markit iTraxx Senior Financials 159.5bp (-5), Markit iTraxx Subordinated Financials 272bp (-2.5)
- Sovereigns – Greece 810bp (-3), Spain 234bp (0), Portugal 433bp (+9), Italy 173bp (0), Ireland 562bp (+4), Belgium 164bp (+2), France 88bp (+1)
- Egypt 355bp (+18), Tunisia 175bp (+5), Morocco 170bp (+5), Saudi Arabia 107bp (-1), Bahrain 232bp (-2), Qatar 96bp (-1), Lebanon 350bp (-5), Israel 135bp (+3)
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