US payrolls boost credit

Credit markets recouped some of their losses from Thursday following today's publication of US nonfarm payroll figures for May.

The US Department of Labor reported a rise of 175,000 in payrolls last month, beating estimates by around 26,000.

European credit spreads had yesterday widened significantly following ECB president Mario Draghi's summary on what was discussed during the Governing Council meeting. Draghi's comments were interpreted as pointing a change in the ECB's monetary policy stance in the near future.

Credit was on the gain, globally, with the Markit iTraxx Europe index trading at 105.8bps late in the session on Friday after tightening 7.04bps from yesterday's close. The Markit CDX Investment Grade index also performed well as we end the week, tightening 4.17bps to land at 79.9bps.

One could question why global credit markets responded so positively to the US jobs data, especially given the recent comments from US Federal Reserve chairman Ben Bernanke that the Fed's monthly asset purchase programme may be scaled down depending on labour market data. This had triggered widening in both US and European credits.

It could be that CDS spreads tightened today because credit markets believed the May nonfarm payroll figures would be classified by the Fed as no real improvement. If so, the US central bank is less likely to scale down its monthly asset purchase programme.

Of course, we are yet to see how the Fed interprets the May payroll figures, however, markets are clearly hopeful that the current asset purchase programme will continue as it is.


Akif Ince, Markit Credit

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