European credit spreads tightened in afternoon trading on Wednesday, helped by a late bounce in equities and better-than-expected first-quarter profits from Boeing Co. "It's the normalisation of credit markets," a London-based trader said. "In the absence of any more bad news that isn't on the radar, things will only get better."
By 1515 GMT, the Markit investment-grade iTraxx Europe index was at 81 basis points, according to Markit data, 2 basis points tighter versus late on Tuesday. The iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was 6.5 basis points tighter at 462 basis points.
Not even a warning of "significant" first-quarter writedowns at German bank HVB, part of Europe's UniCredit SpA, were enough to shake the indexes. "We've heard it so many times ... it feels like the financial crisis, at least for now, looks like we've reached an inflection point and we're heading towards a better place," Societe Generale credit strategist Juan Valencia said.
"The market is having a hard time getting spooked." The cost of insuring Finnish fine paper maker M-real's debt against default rose after the company reported a 37 million euro ($59 million) quarterly loss, more than twice the average forecast of analysts in a Reuters poll.
Five-year credit default swaps on M-Real were 15 basis points wider at 890 basis points, a second trader said earlier. A steady flow of fresh non-financial corporate bond issuance kept primary markets busy, with deals coming from German utility giant E.ON and miner Anglo American. E.ON is due to price a dual-tranche euro bond on Wednesday at the tight end of guidance following strong demand.
Demand for the five-year, 1.5 billion euros ($2.39 billion) and 12-year, 1 billion-euro tranches was strong, at around 10 billion euros. "They were blow outs," a second trader said.
Anglo American priced a 10-year sterling bond at 220 basis points over gilts, below the initial range of 225 to 230 basis points. Barclays, BNP Paribas and Royal Bank of Scotland managed the sale.
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