European credit spreads tightened on Tuesday as stocks rebounded a day after a shock rejection of the planned $700 billion US financial sector bailout plan sent shares tumbling. By 1546 GMT, the investment-grade Markit iTraxx Europe index was at 118 basis points, according to data from Markit, 5 basis points tighter versus late on Monday.
The Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 575 basis points, 9 basis points tighter. Credit derivative indexes retraced from wider levels earlier in the session as credit analysts remained hopeful that an amended rescue plan would be accepted by US lawmakers.
"Hopes that `the plan' still has legs boosted stocks today," said SG credit strategist Suki Mann at SG CIB, which helped support credit derivative indexes, he said. Mann praised the Irish goverment's decision to guarantee all bank deposits and specific bonds until 2010, which pushed debt protection costs sharply tighter on names such as Anglo Irish Bank.
"Amid all the gloom a chink of light and some credit where it's due," said Mann. "The plaudits go to the Irish government for the blanket guarantee it put in place." He described the move as "significant" for Irish banks which "would have been next in line in terms of a run on deposits."