Credit spreads widen

European corporate credit spreads widened on Wednesday, tracking equity markets, but that failed to deter corporate borrowers, who continued to pump fresh supply onto the market.
The investment-grade Markit iTraxx Europe moved back over 100 basis points and the mostly "junk"-rated Crossover index was back above 500 basis points, but traders said the move lacked any particular impetus and trading was thin. SG CIB credit strategist Suki Mann said that the move did not necessarily presage further pain in the market. "The market is just so illiquid that it plays into the hands of the bears," he wrote in a note to clients.
"Bears are to the fore at the moment, and to push the indices wider on the back of any unsupportive newsflow is easy to do. Confidence after all is still fragile, investors are wary and illiquid markets tend to exaggerate spread movements. By 1535 GMT, the iTraxx Europe index was at 103.5 basis points, according to Markit data, 8.5 basis points wider versus late on Tuesday.
The iTraxx Crossover, made up of 50 mostly "junk"-rated credits, was 18 basis points wider at 508 basis points. "People are just looking at equity markets, to be honest," said one trader in London. European shares fell on Wednesday, with banks leading the way on concern they may have to reveal further damage to earnings due to the credit crunch.
Strategists at ING said in a note that they expected the Europe index would trade between 100 and 140 basis points as uncertainty over the outlook persisted, and that they recommended setting short positions at the low end of that range.
However, the primary market offered something more substantial for investors to focus on, with Deutsche Telekom and Anglo American offering a brace of 7-year deals and Morgan Stanley tapping the three-year segment.
Both the Deutsche Telekom and Anglo American deals saw guidance tightened as demand for non-financial corporates appeared to hold up well despite wider spreads elsewhere in the market. In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 130 basis points more than similarly dated government bonds, 0.5 basis points more on the day.