The Markit iTraxx Crossover index is trading in excess of 1,000 basis points (bps) for the first time since the index started trading in 2004, Markit data shows.
Forty per cent of names within the index are currently trading over 1,000 bps. A majority of these are trading points upfront, with five names – Lyondell Basell, Ineos, ONO Finance II, HeidelbergCement and Truvo Subsidiary – trading over 50 points upfront, an indication of severe near-term distress.
Gavan Nolan, credit analyst at Markit, said: “The marked widening in the index reflects the deterioration in the European economy, a trend that has accelerated in recent months. It is not just a technical move – the underlying names are trading even wider. The default rate in Europe is still relatively low but this can be expected to pick up in 2009.”
Chris Williamson, chief economist at Markit, said: “The Markit iTraxx Crossover index points to heightened concern over corporate solvency. Fears of default on corporate debt have risen sharply in line with the growing realisation that the economic downturn continued to gather momentum in November. Today’s release of the Markit Eurozone PMI – which collapsed to a record low in November – suggests that no signs of a bottoming out are yet evident, pointing to a longer and deeper recession than previously thought.”
The Markit iTraxx Crossover is a synthetic index composed of 50 CDS[1] referencing European sub-investment grade credits. Markit is the owner of the Markit iTraxx and Markit CDX indices.
