European credit spreads widened on Tuesday, in response to pessimism about the effectiveness of government action to try to halt the economic downturn. US stocks came under pressure from perceptions that the economic climate is deteriorating and that efforts to stabilise the financial system might be inadequate.
By 1622 GMT, the investment-grade Markit iTraxx Europe index was at 172 basis points, according to data from Markit, 11 basis points wider than late on Monday. The Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 1,110 basis points, 5 basis points wider. Ratings agency Moody's Investors Service ignited new concerns over banks in emerging European countries, saying those with large loan books faced downgrades.
Moody's said recession in emerging Europe would be more severe than elsewhere and would put the financial strength ratings of local banks and their Western parents under pressure. Italy's UniCredit, for example, saw its five-year credit default swaps widen by 46 basis points to around 217 basis points.