European credit indexes widen

European credit indexes widened on Monday, tracking a drop in US and European share markets after weak New York manufacturing data added to earlier euro zone job figures to hit prospects for an economic recovery. By 1510 GMT, the investment-grade Markit iTraxx Europe index was at 112.75 basis points, according to data from Markit, 4.75 basis points wider versus late on Friday.
The Markit iTraxx Crossover index, made up of 45 mostly "junk"-rated credits, was at 709.25 basis points, 29.25 basis points wider. Credit strategists cited both Europe's job figures, with the deepest annual drop since measurements started in 1995, and the Empire State manufacturing index, which shrank at a more severe rate in June than in May, among the day's major economic indicators.
New cash issuance included deals from France's AXA and Lafarge and a senior unsecured bond from UK bank Lloyds. "Another bullish start to the credit week with Lafarge pricing a quick-fire seven-year," ING credit strategists said in a note to investors. Standard Chartered came out with a planned dollar perpetual hybrid bond, which was set at about $1 billion.
French tyre manufacturer Michelin launched a buyback of 350 million euros in subordinated bonds, offering bondholders 85 percent of the nominal value. The hectic pace of primary issuance contrasted with a more subdued tone across equity markets, with European shares down after losses in Asian markets.
"Markets seem to be facing another week of directionless trading as this week's micro and macro calendars do not have many highlights," said UniCredit (HVB) credit analysts in a note. "Over the past two weeks, equity and credit markets lost their momentum that spurred the three-month rally," they said.
The main European credit default swaps index has tightened by about 100 basis point in the past three months, alongside a rally in stocks on greater optimism about prospects for recovery in the global economy. However, UniCredit analysts noted that the main Europe index had not managed to trade below the 100 mark and that the Crossover had been confined in a tight range.
"We stick to our view that the tightening potential in credit becomes limited." The health of the global economy was in focus at a meeting of finance ministers from the Group of Eight (G8) at the weekend. "Finance ministers from the G8 on Saturday signalled their cautious belief that the worst of the global financial crisis might be over," Barclays Capital analysts said in a note.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 173.8 basis points more than similarly dated government bonds, 0.3 basis points up on the day. In underlying government bond markets, the yield on the interest rate sensitive two-year Schatz was 1.639 percent, 9.3 basis points lower on the day. The 10-year Bund yielded 3.576 percent, 5.9 basis points lower.