European credit spreads drifted narrower in muted flows on Monday, shrugging off poorer performances in European and US stocks, with an absence of negative credit-specific news, traders said. By 1512 GMT, the investment-grade Markit iTraxx Europe index was at 92.25 basis points, according to data from Markit, 4.75 basis points tighter than late on Friday.
The Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was 20 basis points less at 552 basis points. "Short covering is taking the market a touch tighter," a trader said. By 0901 GMT, the investment-grade Markit iTraxx Europe index was at 94.75 basis points, according to data from Markit, 2.25 basis points tighter versus late on Monday.
The Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 562.5 basis points, 9.5 basis points tighter. "Global equity markets got another boost Friday afternoon, triggering the biggest gain in US stock markets since April," UniCredit (HVB) analysts wrote in a note to investors, adding that European credits opened tighter in line with the strong performance of markets overnight.
"This was built on oil, but oil might prove to be a slippery foundation. This is especially true against the background of the Russian/Georgian conflict." The military clash between the two countries did cause concern on Monday that energy exports from the region might be disrupted, nudging oil prices up slightly. European share markets were still up on the day, however, boosted partly by the higher dollar on concerns that European growth was slowing more than expected.
Among individual names, credit default swaps on five-year debt of Dutch mail and express delivery company TNT NV tightened by about 24 basis points to slightly under 110 basis points, a trader said, following reports that it was in talks on a potential bid from US rival United Parcel Service. Five-year CDS on British electrical goods retailer DSG tightened by about 14 basis points to 421.5 basis points, a trader said, after the Sunday Telegraph said the company was looking at selling its Italian and Spanish store chains.
The net percentage of banks reporting tightening conditions fell to 43 percent from 49 percent in the first quarter for companies. In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 118.9 basis points more than similarly dated government bonds, 0.4 basis point more on the day.
In underlying government bond markets, the yield on the interest rate sensitive two-year Schatz was 4.052 percent, 1.3 basis points less on the day. The 10-year Bund yielded 4.263 percent, 0.3 basis points more. The 10-year euro swap rate was 4.740 percent.