European credit spreads tightened on Friday, buoyed by European equities, although they pared some of the move after US consumer sentiment data from the University of Michigan came in weaker than expected.
The benchmark iTraxx indexes have been moving tighter throughout the week, reversing the widening seen last week, as the focus has moved more to new corporate bond sales that have been broadly well received, bringing support to the market.
By 1515 GMT, the Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 413 basis points, according to data from Markit, 7 basis points tighter versus late on Thursday. The investment-grade Markit iTraxx Europe index was at 68 basis points, 2 basis points tighter.
The indexes had earlier been indicated as low as 404 basis points and 65.5 basis points, respectively, but weakened late in the session after US consumer confidence tumbled to its lowest in 28 years this month. Traders said there was little activity in the market on Friday, with investors perhaps focused on digesting the heavy flow of supply this week, including sizeable deals from BMW, France Telecom and Daimler. "The new issue window, largely shut in Q1, exploded in April and May as investors sensed stability was returning to the markets," strategists at BNP Paribas said in a note to clients.
Among single names, CDS on British Airways fell 20 basis points to 301 basis points after it released results that pushed its shares up nearly 4.5 percent. BA said profits rose 45 percent, allowing it to pay its first dividend since 2001, but warned that the year could be turbulent with fuel costs set to rise 1 billion pounds.
The cost of insuring Icelandic banks' debt against default fell sharply on Friday after the Swedish, Danish and Norwegian central banks agreed a swap facility with Iceland. Five-year credit default swaps on the banks fell by some 40-50 basis points, with Kaupthing indicated around 425 basis points, Glitnir around 380 basis points and Landsbanki around 220 basis points.
The Swedish central bank said the facility was aimed at supporting the Icelandic central bank in its task of safeguarding economic and financial stability. In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 111.8 basis points more than similarly dated government bonds, 0.6 basis points more on the day.