Credit spreads edge tighter

European credit spreads tightened slightly on Thursday, along with gains in European stock markets, following an overnight rally in US equities. But traders and analysts said gains were comparatively small as investors remained focused on economic concerns.
"What is clear that even though equity markets rebounded, the continued concern over the strength of the US economy appears to be spooking the credit markets," Deutsche Bank credit strategist Jim Reid wrote in a note to investors.
By 0919 GMT, the iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 398.5 basis points, according to data from Markit, 1.5 basis points narrower versus late on Wednesday.
The FTSEurofirst 300 index was up 0.1 percent after the Dow Jones industral average rose 1.16 percent and the Nasdaq composite index by 1.39 percent on Wednesday.
The majority of UK economists are forecasting no change in the UK rate of 5.5 percent, "even though the market aggressively repriced the probability of a cut yesterday on the back of the latest woes in the UK retail sector," Reid wrote. "So we are set for a second successive knife-edge decision."
The investment-grade iTraxx Europe index was at 66.25 basis points, 0.75 basis points tighter. Analysts also said markets got a boost from a Bloomberg report that Warren Buffett's company, which recently set up new bond insurer Berkshire Hathaway Assurance Corp (BHAC), was considering partnering with or buying an existing monoline bond insurer.
The iTraxx five-year senior financials index was at about 57.5 basis points, 1.5 basis points tighter on the day, a trader said. In the new issue market, GE Capital UK Funding, a triple-A rated unit of General Electric's finance arm GE Capital Corp, plans to sell a 25-year fixed-rate sterling benchmark bond. It set guidance on the bond at gilts plus 145 to 150 basis points.
In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 101.3 basis points more than similarly dated government bonds, 1 basis point less on the day. In underlying government bond markets, the yield on the interest-rate sensitive two-year Schatz was 3.758 percent, 0.5 basis points more on the day. The 10-year Bund yielded 4.100 percent, 0.5 basis points more. The 10-year euro swap rate was 4.520 percent.