European credit spreads ticked lower on Monday as equities rose, but trading was thin due to concerns about the potential for seeing more market-moving headlines. "Today's been quite quiet," a trader said, highlighting the contrast between Monday and late last week, when a flood of news hit the market and prompted several days of volatility.
The iTraxx Crossover index, viewed as the most widely used indicator of European risk sentiment, was at 335 basis points by 1500GMT, a second trader said, 5 basis points tighter on the day and 60 basis points tighter from Thursday's close.
Strategist Raja Visweswaran, head of international credit strategy research at Bank of America, warned that current market conditions of illiquidity and thin trades have made the Crossover a less reliable indicator of market sentiment.
"This is literally a market where with one tenth of the volume from this time last month, you could move the market three times as much," he said. The index bounced around within a roughly 15 basis point range, and traders attributed the overall grind tighter largely to news from Friday that the US Federal Reserve had cut the rate at which it lends to banks.
Traders said, however, that the Fed's move had merely provided a respite in choppy markets and that investors were still selling short. Many are reserving their final judgement on the market until next month's interest rate decision.
"Credit is still slightly disbelieving in this rally," the first trader said. The investment-grade iTraxx Europe tightened 2.5 basis points to 47 basis points. In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 65.2 basis points more than similarly dated government bonds at 1522 GMT, 0.8 basis points more on the day.
In single names, the cost of insuring debt of British broadcaster ITV against default fell 15 basis points to 77.5 basis points by 1340 GMT, the trader said, despite an absence of headlines.
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