European credit spreads continued to tighten on Wednesday, buoyed by hope the European Union may be set to bailout debt-laden Greece. The move in both indexes and the vast majority of constituents, led by Greek, Spanish and Portuguese firms, follows reports the EU had agreed in principle to lend financial support to Greece.
By 1115 GMT, the investment-grade Markit iTraxx Europe index was at 86.50 basis points, according to data from Markit, 3.5 basis points tighter versus late on Tuesday, according to data from BGC Partners. The Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 459 basis points, 16 basis points tighter. "If we get a serious promise of support for Greece, spreads could tighten considerably further," Evolution Securities analyst Gary Jenkins said in a note.
If the European Union fails to act after a meeting on structural economic reform on Thursday, "there will be blood on the walls in the market on Friday. However, they must be aware of that and, thus, it is an extremely unlikely scenario," Jenkins said.
In response to the positive market sentiment, constituent members of both indexes were mostly tighter. Portuguese lender Banco Espirito Santo moved 27 basis points tighter to 228 bps, while Energias de Portugal, Hellenic Telecom and Gas Natural were 29 bps, 15 bps and 17 bps tighter, respectively. On primary issuance, Czech miner New World Resources withdrew its planned 700 million euro high-yield bond, citing market volatility.
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