European credit spreads widen

European credit spreads widened on Friday, extending a market decline kicked off by surging oil prices, after the investment grade index broke through a technical resistance level, an analyst said. In the cash bond market, meanwhile, strong demand enabled French utility EDF to tighten guidance on two bonds and add a third to a planned sale.
By 1436 GMT, the investment-grade Markit iTraxx Europe index was at 86.5 basis points, according to data from Markit, 7.5 basis points wider versus late on Thursday.
The index had been trading in a range between 60 and 80 basis points through the month, said Maureen Schuller, a debt strategist at ING in Amsterdam. "When the index broke though the 80 level, it tended to widen further, faster," she said. Thin trading ahead of Monday holidays in both Britain and the United States tended to reinforce the technical move, she said.
Since late on Monday, the Europe index has widened by 23.5 basis points as oil prices have risen to records and as the US Federal Reserve forecast cut its forecast for growth and warned of higher inflation. "The main driver has been the oil price rise this week," Schuller said.
The Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 470 basis points, 35 basis points wider. The index has widened by 78 basis points since late on Monday. As for cash bonds, the EDF bond sale indicated the market was holding up better than the derivatives market.
The French power company cut guidance on planned six-year and 12-year euro bonds and added a third 20-year sterling bond. "If there is a substantial move wider or tighter, the CDS market typically changes ahead of the cash markets," Schuller said.
The EDF bond sale was the second of the year for the power company, following a 1.5 billion euro 10-year bond it priced on January 18 at mid-swaps plus 70 basis points. Guidance on the Friday deal was tighter by comparison at 68 to 69 basis points for a 12-year bond. At the same time, the investment-grade Europe index was wider versus a range on January 18 of 72 to 75 basis points.