Halister News

(Bloomberg) -- European credit mkt looks set to close the week on a positive note, even if investors continue to question the fundamental justification for such improved risk appetite and tighter spreads, Bloomberg strategist Simon Ballard writes.

• Assumptions of almost open-ended monetary stimulus, with PBOC seen poised to ease further and ECB also widely expected to deliver more next month, may provide a short- term fillip for credit; but many investors maintain an underlying defensive bias with analysis of risk/reward, questioning the longer-term sustainability of generic risk- asset price buoyancy

STATE OF PLAY (Thursday 10.30am GMT)

• Synthetic indexes sharply tighter as we head toward the weekend; iTraxx Europe 105.77 mid (-3.4bps), iTraxx X-over 425.61 mid (-14.4bps)
  • Financials benefiting from the improved tone to risk appetite; capital structure curve flatter with iTraxx Senior and Sub indexes -4.7bps and -10.9bps respectively
• Corp cash indexes tighter, but again more modest moves than in synthetics; EUR IG currently 97.38 (-2.0bps), EUR HY cash quoted 567.13bps (-5.6bp)
  • GBP IG credit, now 210.86 (+0.4bps), continues to struggle on implied Brexit risk, although GBP HY paring losses at 590.04 (-2.7bps), according to Bloomberg data
• Bloomberg Commodity Index trading marginally higher this morning ($76.28, +0.5%) as a reflection of uptick in oil price; WTI current $33.75, (+2.1%); copper March 2016 future (211.95) +2.2%, silver March 2016 future -0.4% and gold -0.3%
• European equities propelled higher by stimulus assumptions, albeit with FTSE100 (+1.2%) among laggards; major bourses up around 2% on average
  • Similar optimism being baked into U.S. equity futures, which should create a decent base for U.S. corporate credit risk at the open
• Little change in EUR govt bond yields despite risk on sentiment; long-end slightly steeper
  • 5Y bund -0.36% (unch), 8Y -0.12% (unch), 10Y 0.15% (+1bp), 30Y 0.84% (+2bps)

• NOTE: Simon Ballard is a credit strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.