Financial credit derivative indexes widened on Friday after European Union regulators released methodology details for stress tests on Europe's biggest banks. The banks faced a double-dip recession, stock markets falling sharply, and steep rises in interest rates under scenarios imposed by regulators, the Committee of European Banking Supervisors (CEBS) said.
The iTraxx senior financials index widened about 6 bassis points to 132 bps, the trader said. The CEBS said sovereign debt losses in the stress tests, due to be released at 1600 GMT, applied to banks' trading books only and not the banking book.
The indexes might rally if results showed the banking books had been tested for other shocks, the trader said. In the broader market, the investment-grade Markit iTraxx Europe index was at 112.25 basis points by 1418 GMT, according to data from Markit. That was 2 basis points tighter versus late on Thursday, according to data from BGC Partners. The Markit iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 505 basis points, 7 basis points tighter.