Positive bank news drives rally

From tomorrow, the Markit credit team will move to producing one daily note instead of three. However, at least one thematic, deeper piece will also be published each week.

Positive news for the banking sector and French automakers led to credit spreads resuming their rally from last week.

Banks were the obvious winners today after the Basel Committee announced changes to the Liquidity Coverage Ratio (LCR) that should prove beneficial for financials.

The definition of High Quality Liquid Assets (HQLA) has been expanded to include corporate debt rated between A+ and BBB- and certain unencumbered equities. Both will be subject to a 50% haircut.

A revision was on the cards, but the changes went beyond most expectations. The Markit iTraxx Senior Financials rallied as a result and at 121.5bps, continued to close the gap on the Markit iTraxx Europe (102bps, -2.5).

French automakers were also in focus amid reports that Peugeot may sell a stake in the parts maker Faurecia. Peugeot has underperformed its competitors in recent years, mainly due to its high exposure to the ailing economies of southern Europe.

Spreads tightened towards the end of last year, helped by the government agreeing to guarantee as much as €7 billion in new debt issued by its banking unit. However, sales have continued to decline and the company will have to take further steps to shore up its balance sheet.

Peugeot's spreads were 12bps tighter at 612bps and trade with an implied rating of 'B', according to Markit data.

Over in the US, news that Bank of America had agreed a $10.3 billion settlement with Fannie Mae was welcomed by credit markets. The deal will make a significant dent in BofA's earnings, but the certainty given by the resolution is a positive development. BofA's spreads were 7bps tighter at 110bps.

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