European credit spreads held tighter on Monday, with confidence lifted by the US government's plan to support top mortgage companies Freddie Mac and Fannie Mae. By 1500 GMT, the Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 532 basis points, according to data from Markit, 15 basis points tighter versus late on Friday.
The investment-grade Markit iTraxx Europe index was at 99.5 basis points, 3.5 basis points tighter. Both indexes gave up some of their gains, however, as US stocks retraced from earlier rises. "We're just tracking stocks, and they have come off a bit," said Suki Mann, a credit strategist at SG CIB. "The rescue plan has given some confidence back to the market. I think we'll be back to the earnings season from tomorrow."
The cost of insuring the debt of British bank Alliance & Leicester against default fell sharply after Spain's Santander said it was buying the bank for 1.3 billion pounds ($2.6 billion). Five-year credit default swaps on Santander were about 5 basis points wider at 82.5 basis points, while 5-year CDS on A&L were about 100 basis points tighter at 115 basis points, a trader said.
Standard & Poor's said it may raise its A credit rating on A&L, and said its AA ratings on Santander and its UK subsidiary Abbey National would remain unchanged. "The deal will increase Santander's critical mass and infrastructure, enabling the bank to continue expanding its commercial business in the UK," S&P said. "The financial impact on Santander will be marginal."
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