European credit spreads rallied for a second day on Wednesday as fears of a global financial disaster eased and after a US report showed a surprise monthly gain in jobs. By 1639 GMT, the Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 521 basis points, according to data from Markit, 17 basis points tighter versus late on Tuesday.
The investment-grade Markit iTraxx Europe index was at about 103 basis points, 7 basis points tighter. "Sentiment is much improved recently in the credit market," said Simon Ballard, a credit strategist at ABN Amro Asset management.
The Markit iTraxx five-year senior financials index tightened by 10 basis points to 97 basis points, according to Markit, 22 basis points tighter than late Monday.
US private sector employers added 8,000 jobs in March, according to a report by ADP Employer Service. That compared with analysts' forecast of a drop of 48,000 jobs. The market still expects Friday's US non-farm payroll figures to show a loss of jobs, but the ADP number is reducing the estimates for losses, Ballard said. "I myself am taking a more sanguine view of the figures on Friday."
Federal Reserve Chairman Ben Bernanke also told a congressional committee that rate cuts and emergency measures to provide liquidity to the markets had alleviated some stresses in the market and should promote a return to growth in the second half of the year.
Tuesday's rally was triggered, among other things, by UBS's announcement of a $19 billion writedown and plans to raise $15 billion in capital in a rights issue. Investors saw these moves as a sign that the Swiss bank was getting towards the end of accounting for its losses in the credit crisis.
Five-year credit default swaps on senior UBS debt narrowed by 6 basis points to about 108.5 basis points, adding to a 26 basis point tightening on Tuesday, according to data from Markit.