Credit shows resilience

The credit markets provided further evidence of their resilience today after they withstood negative sentiment that built overnight.

The Markit iTraxx Europe closed just 0.5bp wider at 72bp, an impressive performance given the sharp sell-off yesterday in New York and today in Tokyo. Even more surprising was the performance of the Markit iTraxx Senior Financials. The index tends to widen by a greater extent than the Markit iTraxx Europe on negative days, but it managed to tighten by 0.5bps to trade at 86.75bps towards the end of the afternoon session.

Perhaps it was the lack of a clear catalyst that allowed the market to recover so quickly. Concerns about the mixed US jobs report were cited in the media as a trigger for yesterday's US sell-off, but this appeared tenuous. It seems that the long base is so large that it is difficult for short investors to gain a foothold.

Better than expected US retail sales may have contributed to the bounce-back. Sales excluding autos, petrol, building materials and food services rose 0.7% in December, an improvement from the previous month's reading of 0.2%.

JPMorgan produced another fillip to the market after its fourth-quarter earnings beat expectations, though they were well below the same quarter last year due to legal expenses. Wells Fargo's results also came in slightly ahead of consensus estimates. JPMorgan's CDS spreads were 1bp tighter at 68bps, while Wells Fargo's spreads were steady at 41bps.

Download full article