European credit default swap spreads were mixed on Tuesday, with doubts over governments' ability to stabilise the financial services sector helping to push the investment grade index wider. By 1642 GMT, the investment-grade Markit iTraxx Europe index was at 183 basis points, according to data from Markit, 3 basis points wider versus late on Monday.
The Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 1,076 basis points, 7 basis points tighter. Nervousness about the financial sector was highlighted by sellers of credit protection in the credit default swaps market asking to be paid on an upfront basis to insure the subordinated debt of US bank Citigroup.
In rating actions, Standard & Poor's said it might cut its rating on papermaker UPM-Kymmene to junk status, but a trader said the reaction in credit derivative markets was relatively tame. Five-year credit default swaps on UPM were about 13 basis points wider on the day before the move and then jumped a further 8 basis points wider to 410 basis points after the report, a trader said.
S&P also changed its outlook on sector rival Stora Enso to negative from stable, but affirmed its BB+ "junk" grade rating. Five-year CDS on Stora Enso was about 3 basis points wider at 540 basis points, the trader said. In the European insurance sector, S&P warned of potential rating changes for some companies.
The agency said it might change ratings of so-called multiline insurers if earnings fall more than S&P had estimated. Multiline insurers bundle together property and casualty insurance into one contract. Five-year credit default swaps for Dutch insurer Aegon, for example, were 16 basis points wider at about 340 basis points, according to Markit data.
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