European credit derivative indexes held slightly wider throughout Tuesday on concerns that the flu epidemic would drag on the economy and on uncertainty about the capital adequacy of some top US banks.
By 1540 GMT, the Markit iTraxx Crossover index, made up of 45 mostly "junk"-rated credits, was around 855.5 basis points, according to data from Markit, 8.5 z basis points wider versus late on Monday. The investment-grade Markit iTraxx Europe index was at 153.25 basis points, 1.25 basis points wider.
The Wall Street Journal reported that regulators told Citigroup Inc and Bank of America Corp they needed to raise more capital following "stress tests" of banks' ability to withstand the economic crisis. It said Bank of America needed billions of dollars. Debt protection costs on airlines remained under pressure as concerns grew that the flu epidemic would disrupt travel.
Five-year credit default swaps on Air France were about 20 basis points wider at 445 basis points, Lufthansa 5-year CDS were 3 basis points wider at 166 basis points while British Airways CDS widened by about 43 basis points to 773 basis points, Markit data showed. Five-year CDS on French hotels group Accor also widened by about 11 basis points to 191 basis points.
Meanwhile, new bond issues continued to flow with 2 billion euros ($2.6 billion) raised on Tuesday. Luxury goods maker LVMH sold a 1 billion euro five-year bond and DONG Energy raised the same amount in a dual-tranche issue. Year-to-date investment-grade corporate euro issuance has now reached 131 billion euros. That is just 5 billion euros short of making this year the third best year on record for non-financial corporate issuance, according to SG CIB.