Weak data drags credit wider

European credit markets were were trading wider today as they continued to digest poor industrial production data announce yesterday for the euro area.

The Markit iTraxx Europe and iTraxx Crossover indices were wider by 0.87bps and 4.24bps trading at 98.2bps and 393.8bps, respectively as production dropped by 1.5% in July compared to June.

The eurogroup meeting is taking place today in Vilnius, Lithuania where the main topics of discussion are Greece and Cyprus.

The European Stability Mechanism today approved the disbursement of Cyprus' second tranche of a financial assistance programme worth €1.5bn. The disbursement is pending a formal decision by the ESM board of directors.

ESM's approval added further widening to credit spreads towards midday. The Markit iTraxx Europe and iTraxx Crossover indices were 1.30bps and 6.24bps wider at the time of the announcement.

Emerging market sovereigns also lost ground with Ukraine (880bps, +14.78bps), Indonesia (257.5bps, +15.27bps) and Turkey (212.33bps, +4.12bps) leading the way.

Some continued to rally albeit weakly. Russia and South Africa both displayed weak tightening compared with yesterday, trading at 167.5bps (-1.59bps) and 201.5bps (-3.8bps), respectively.

Vodafone managed to get approval from 75% of Kabel Deutschland's shareholders, the minimum amount required, to acquire the German cable operator. Vodafone's CDS widened 1.12bps to trade at 74bps following the news.

After a good start to the week with better-than-expected Chinese data, the markets appear to be wrapping up in a rather unfortunate position. Next week's spread performance is most likely to be driven by Syria talks and a possible return of the Fed's QE tapering to the headlines.

Akif Ince, Credit Analyst, Markit

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