European credit markets edged tighter on Friday, supported by stronger-than-expected US data, although trading remained relatively lacklustre ahead of a three-day weekend in the United Kingdom.
The iTraxx Crossover, viewed as a barometer for risk appetite and made up of 50 mostly "junk"-rated credits, tightened 3.5 basis point to 320.5 basis points by 1410 GMT, according to Deutsche Bank figures, after remaining largely unchanged prior to the release of US housing numbers.
"The entire tone has probably changed a little bit," a trader said. "There's definitely a view now that maybe the world isn't quite such a terrible place."
Confidence in the markets was lifted after strong US durable goods orders and new home sales which both showed that the world's largest economy was bearing up well amid recent market volatility.
Sales of new US homes unexpectedly rose 2.8 percent in July, reversing two months of declines, a Commerce Department report showed Durable goods orders also shot up a greater-than-expected 5.9 percent in July, the biggest gain since September. Excluding volatile transportation orders, orders rose 3.7 percent, the sharpest since August 2005 and the first rise in that category since April. Analysts had expected gains of just 0.6 percent. Traders, however, were quick to point out that the data might diminish the likelihood of a Federal Reserve interest rate cut in the near future that many have been anticipating.
The investment-grade iTraxx Europe index was 0.5 basis points tighter at 42 basis points.
In single names, Fitch Ratings cut Hanson Plc's senior unsecured rating two notches to BBB- on the completion of the company's acquisition by HeidelbergCement AG. Hanson's IDR was also withdrawn, Fitch said in a statement.
Analysts had expected the downgrade, something, which was reflected in both companies' stagnant spread levels. Five-year credit default swaps on Hanson and Heidelberg were unchanged at 47.5 and 82.5 basis points respectively.
Hanson is rated Baa1 by Moody's Investors Service and BBB- by Standard & Poor's.
Elsewhere, the cost of insuring debt of Italy's Enel against default was steady after Chief Executive Officer Fulvio Conti said the utility plans to launch a bid offer for Russian power generator OGC-5 after it won approval from Russian anti-trust authorities. Enel already holds 29.9 percent of the company. Five-year CDS on Enel were unchanged at 31.5 basis points, a trader said. Russia's antimonopoly agency later gave the thumbs up to Enel's take-over plan.