Credit spreads slightly wider

European credit spreads made large intra-day swings in thin trading volumes on Thursday, recovering most of a steep early loss to emerge slightly wider on the day. By 1530 GMT, the iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 367 basis points.
According to data from Markit, 5 basis points wider than late on Wednesday after the index earlier reached as high as 376. "There is not much trading. It feels like a Sunday," said one trader. The market was hit early in the day by a number of negatives including an announcement by Moody's Investors Service that it would cut ratings on 10 percent of the debt held by structured investment vehicles (SIVs).
Other negatives were Morgan Stanley's report of a $3.7 billion loss and a comment by analysts at the Royal Bank of Scotland that US banks face as much as $100 billion of write-downs based on new accounting rules.
The Crossover recovered by midday, reaching 363 basis points, along with a similar improvement in equity markets and after a better-than-expected figure for US job losses. The index then widened slightly again after US equity markets opened lower and the US Federal Reserve reported that the US asset-backed commercial paper market contracted for the 13th straight week by the biggest amount in two months.
The CDS market's next landmark could be that the Crossover reaches 400 basis points, he wrote. "This is, however, only feasible if equity markets continue to show some weakness." Fears about the potential for further writedowns by the banks pushed the iTraxx senior financial index about 4 basis points wider at 48.5 basis points, a trader said.
Five-year credit default swaps on Britain's Barclays and Royal Bank of Scotland underperformed the index as their shares fell to multi-year lows after Bernstein cut its price targets on the two banks, adding to concerns they face big writedowns. Barclays CDS widened by 6 basis points to 57.5 basis points and RBS by about 8 basis points to 57.5 basis points, traders said.
Equity indexes were barely lower by 1528 GMT, with the FTSEEurofirst 300 down 0.5 percent, Britain's FTSE index down 0.1 percent and the Dow Jones industrial average down 0.1 percent. The investment-grade iTraxx Europe index was at 49 basis points, 1.5 basis points wider on the day.