Credit tightens as QE threat retreats

European credits performed well late in the session today, with the Markit iTraxx Europe and the Markit iTraxx Senior Financials indices both tightening to trade at 83.33bps (-1.40bps) and 117.63bps (-3.80bps), respectively.

The markets were back on track after digesting the statement published yesterday by the Federal Open Market Committee (FOMC) after its October meeting.

FOMC decided to continue with its existing monthly $85bn worth of asset purchase programme along with record low interest rates.

The CDX North American Investment Grade index had closed the day 1.51bps wider at 73.02bps. The CDX Emerging Markets index also widened to close the day at 267.4 (+3.19bps).

On the corporate side, Sony cut its full year profit forecast by 40% to 30 billion yen. The drop in forecast came following a 19.3bn yen loss posted for the third quarter, compared with 15.5bn yen for the same period a year ago.

Sony's CDS spreads tightened 5.5bps to trade at 147bps today. However, it is still far from the 455bps it traded at this time last year.

Avon was another poor performer in the earnings season as its profits missed expectations on the third quarter, where the profit per share was five cents lower than analyst estimates, according to Bloomberg.

Avon's spreads took a dent of 51bps to trade at 209bps mid US session today.

It was probably the larger than expected settlement, proposed by the US Securities and Exchange Commission in order to resolve the bribery probes, that shot up Avon's spreads.


Akif Ince, Credit Analyst, Markit

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