European credit default swap spreads widened sharply on Tuesday, in response to the deteriorating economic climate and growing financial industry losses that also pushed European equity markets lower. By 1559 GMT, the Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, set a record wide of 1,132 basis points, which exceeded the previous record closing wide of 1,125 basis points on December 16 last year.
This was 22 basis points wider than late on Monday. The investment-grade Markit iTraxx Europe index was at 193 basis points, according to data from Markit, 3 basis points wider. US shares rose initially on hopes US Treasury Secretary Timothy Geithner would shed light on plans to shore up the financial system. Wall Street had fallen to a 12-year low on Monday.
Dutch semiconductor company NXP unveiled a plan to cut its debt by more than 1 billion euros ($1.27 billion) in a restructuring open to holders of about $5.7 billion worth of secured and unsecured debt. NXP was spun off from Philips Electronics in 2006, and sold to a private equity consortium that includes KKR. Philips still has a stake of about 20 percent.
Five-year credit default swaps on NXP tightened sharply by 1,225 basis points to about 6,059 basis points, according to Markit data, which gave prices on an annual rather than an upfront basis. The grim economic outlook did not deter corporate issuers, with Daimler, Deutsche Bahn and StatoilHydro joining the growing list of companies raising money via the corporate bond markets since the start of the year.
"We still believe that conditions remain supportive for continued supply with spreads historically high and yields quite some way off their highs," said Deutsche Bank in a note.
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