European credit spreads nudged wider on Monday, but trading volumes were light heading closer to the Christmas holiday with attention focused on US bank earnings and housing data later in the week.
By 1555 GMT, the iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 348 basis points, according to data from Markit, eight basis points wider versus late on Friday.
The investment-grade iTraxx Europe index was at 52.5 basis points, 1.25 basis points wider. "There is nothing going on. A lot of people missed summer holidays and are taking them now," a trader said, referring to July and August when the credit turmoil hit its peak.
"We are moving a little bit wider but we tend to drift out of position when flows are this light. I wouldn't expect that to change for the remainder of the week."
For those traders left this week, US bank earnings will be likely to take centre stage, kick-started by Goldman Sachs on Tuesday, followed by Morgan Stanley on Wednesday and Bear Stearns on Thursday. US housing starts figures for November - due at 1330 GMT on Tuesday - will also be closely watched.
Goldman is seen faring well after making bets against the subprime mortgage market that has triggered huge writedowns elsewhere in the US banking sector. Goldman is expected to report a record $11 billion of annual profit.
Financial firms have to date written down more than $65 billion in credit-related losses, but more shocks are expected with official estimates of total losses from the subprime mortgage debacle around $300 billion.
"In the very short term it is all about the banks," said Andrea Cicione, a credit strategist at BNP Paribas. "We're starting to see a trend in the market where we all know there are going to be more losses to come. The market is already pricing in a big chunk of those and therefore the theme is whether those losses are more or less than expected."
Central banks on Monday also began pouring short-term funds into markets to ease strains in interbank lending. The deadline for bids for the US Federal Reserve's $20 billion term auction facility is at 1800 GMT.
"If you look at the scale of the initiative, it's not huge, $20 billion per auction is less than the Fed has already injected through different facilities," said Cicione. "But what is important is the signalling effect, that the banks are coming together and are taking action."
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