The May Day holiday in several European counties ensured that credit trading volumes were subdued, and tomorrow's ECB meeting also kept spreads in a tight range.

However, the day was not without incident, particularly on the economic front. In the US, the ISM manufacturing index for April came in at 50.7, down from 51.3 in March and below consensus estimates. The underwhelming ISM number supports the view that the Federal Reserve governors may well adopt a more dovish tone in their monthly communique later today.

Better news emerged from the UK, where the Markit manufacturing PMI rose to 49.8 in April from 48.6 the previous month. Although still in contraction territory, it was above expectations and the data on new orders gave some encouragement that GDP may improve in the second-quarter. Click here for detailed analysis from our economists.

As the day progressed, however, any positive sentiment from the UK PMI had dissipated and spreads were wider, albeit modestly. The major credit indices failed to hold on to their gains and retreated back through the barriers they breached yesterday. The Markit iTraxx Europe was 2bps wider at 100.75bps, while the Crossover widened by 7bps to 404bps.

In the sovereign world, Slovenia was in focus after it was forced to delay a US dollar bond issue. The country decided to pull the plug following Moody's decision to downgrade it to Ba1 from Baa2. The rating agency cited "the ongoing turmoil in the country's banking system" as the reason for the downgrade.

Investors are more than aware of Slovenia's problems, and the widening in the sovereign's illiquid CDS spreads - 15bps to 305bps - was modest. It already trades with an implied rating of BB, according to Markit data, and the government is expected to return to market in the coming days.

Tomorrow will be all about the ECB and its monthly policy meeting. A 25bps cut in the refinancing rate is widely expected, though this is unlikely to satisfy the market. A move to boost SME lending through the securitisation may be announced, but the central bank could decide to retain some of its dwindling ammunition for later this summer.

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