Retailers trigger 'risk-off'

It was a case of 'risk-off' on Thursday as downbeat results from US retailers and rising government bond yields dampened appetite for credit.

The market was already on the back foot following a pessimistic outlook from US technology behemoth Cisco after the close yesterday. The company warned that sales growth in Asia would be lower than expected and the recovery is "mixed and inconsistent". Cisco, however, is a strong single A credit - it trades with an implied rating of 'AA' - and the 2bps widening in its spreads to 43bps was modest.

Wal-Mart is another rock-solid US credit, but its downward revision to full-year forecasts contributed to the sell-off on Thursday. The US retail firm cut its 2013 earnings guidance to a range of $5.10 to $5.30 a share from the prior forecast of $5.40. Third-quarter guidance was also well below consensus estimates.

Wal-Mart's spreads widened just 2bps to 29bps, underlining its status as one of the strongest credits in the CDS universe.

Macy's (94bps, +1) also missed expectations yesterday, an indication that the US consumer is not yet in buoyant mood. Kohl's, though, bucked the trend after it posted a rise in same-store sales and higher gross profit margins. It's spreads tightened 12bps to 142bps, making it the strongest performer in the Markit CDX.NA.IG by some distance.

Elsewhere, volumes were thin due to several European countries being on holiday. The rise in government bond yields - in this instance a signal of economic health - has reignited talk of the 'great rotation' away from bonds towards equities.

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