European credit spreads tightened on Tuesday as the US services sector contracted less sharply than expected, oil prices fell and as profits at Societe Generale fell less than analysts had anticipated. By 1534 GMT the investment-grade Markit iTraxx Europe index was at 92.75 basis points, according to data from Markit, 3.25 basis points tighter versus late on Monday.
The Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 537 basis points, 8 basis points tighter. French bank Societe Generale posted a 63 percent fall in second-quarter net profit, hit by losses at its corporate and investment banking unit, but the results beat most analysts' expectations.
Meanwhile the US Institute for Supply Management said its non-manufacturing index came in at 49.5 in July, still showing a slight contraction but up from June's 48.2 and beating the 48.5 forecast by economists. The report also showed inflation pressures eased. Credit strategists said that with rates likely to remain at 2 percent, the market's attention would be more on the contents of the Fed's accompanying statement.
"The meltdown of the GSEs (government-sponsored enterprises) has raised concerns over the fragility of financial markets, and it is important for policymakers to direct policy to avoid a financial meltdown," credit strategists at BNP Paribas wrote in a note to clients. US ISM non-manufacturing figures for July, due at 1400 GMT, are another data highlight. Economists polled by Reuters expect the numbers to show a contraction in the US service sector, though less acute than in the previous month.
In single names, five-year credit default swaps on Adecco, the world's largest staffing group, widened around 20 basis points to 131 basis points, a trader said, after Britain's Michael Page said it had received an unsolicited bid from the Swiss company.
CDS on TNT widened 18.5 basis points to 112.5 basis points, according to Markit data, after the Dutch mail group said it planned to sell a 10-year sterling bond later in the session. In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 117.9 basis points more than similarly dated government bonds, 0.1 basis points more on the day.
In underlying government bond markets, the yield on the interest rate sensitive two-year Schatz was 4.247 percent, 0.1 basis points less on the day. The 10-year Bund yielded 4.346 percent, 1.8 basis points more. The 10-year euro swap rate was 4.840 percent.