European credit markets held steady on Monday, yet despite gains in US equities the mood remained nervous on a lack on significant headlines or data to calm investor fears. The iTraxx Crossover index, viewed as a barometer for risk appetite and made up of 50 mostly "junk"-rated credits, was at 409.5 basis points by 1545 GMT.
Little changed from late Friday, a trader said. In earlier trading, the index climbed as high as 430 basis points before beginning its descent through the day. Meanwhile, the investment-grade iTraxx Europe was 1 basis point wider at 58.6 basis points.
"People are very cautious right now," Robert McAdie, global head of credit strategy, at Barclays Capital said. "It feels better than where they (markets) were a week and a half ago, however, there's still a lot of talk around about exposure to the monolines and future hedge fund losses so I don't believe we are by any means out of the woods as of yet," McAdie said.
"The fact that certain mortgage funds have failed in the US which have mainly had Alt-A exposure just shows you that there's a lot more that can happen so people are staying very risk averse," he said.
At the close, the FTSEurofirst 300 index was down 12.89 points, or 0.85 percent, to 1504.27. By 1600 GMT, the Dow Jones industrial average rose 79.82 points, or 0.59 percent, to 13,257.48. Elsewhere, developments in the possible take-over of Imperial Chemicals Industries' had an impact on all major parties concerned with the deal.
Dutch chemicals group Akzo Nobel won access to ICI's books after raising its indicative bid to 8.0 billion pounds ($16.3 billion). The two firms said that Akzo, which has teamed up with German consumer goods firm Henkel for the bid proposal, was now offering 670 pence a share in cash, up 3 percent from the 650 pence a share rejected by ICI last week.
Five-year credit default swaps on Akzo, ICI and Henkel all widened roughly 4 basis points, with Akzo and ICI both trading at 46 basis points and Henkel trading at 33.5 basis points by 1430 GMT, a second trader said.
Across the Atlantic, the spotlight on the indexes was diverted by Countrywide Financial Corp, the largest US mortgage lender, and US brokers with exposure to mortgages including Bear Stearns Cos.
Five-year credit default swaps on Countrywide's home loan unit Countrywide Home Loans, rose by around 100 basis points to 445 basis points, according to data from CMA DataVision. The cost of insuring debt of Bear Stearns Cos.' against default rose around 40 basis points to 200 basis points, in the wake of the resignation of co-President and co-Chief Operating Officer Warren Spector on Sunday.
Lehman Brothers' swaps were around 25 basis points wider at 155 basis points, and Goldman Sachs was around 15 basis points wider at 106 basis points, according to data provided by CMA DataVision.
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