The European Central Bank today announced cuts to refinancing and marginal lending rates to record lows of 25bps and 50bps, respectively.

A whole host of poor PMI data released today supported the ECB's efforts to reinvigorate the contracting European economy. The announcement at last brings European rates in line with those of other major developed economies.

Even though Europe's final manufacturing PMIs were a touch better than expected, readings remain well below 50, the level that indicates a contraction.

Some positive news came in a marginal improvement in the UK Construction PMI to 49.4 for April, up from 47.2 in March. However United Kingdom CDS spreads widened from 46bps to 48.5bps today.

PMI data for Germany showed manufacturing was down in April, and this was reflected in German CDS spreads which widened by 1.5bps to 36.5bps.

In contrast, cheap money was still on the cards for France today. The sovereign managed to place €4bn worth of 10 year bonds at a record low yield of just 1.81%, beating the previous record of 1.94% in April.

On the periphery Slovenia will later today offer bonds to the market in a US dollar issue, which was initially planned for Tuesday. CDS contracts on Slovenia are trading 10bps tighter at 285bps, driven by the sovereign's continuing ability to raise funds and avoid a bailout.

As expected, European corporates reacted positively to the ECB rate cut. The Markit iTraxx Europe five year spread tightened by 4.5bps today closing at 95.5bps.

European equity markets closed relatively flat with US markets buoyed by initial jobless claims coming in at the lowest level since January 2008 as well as news that the trade deficit improved in March.

Frans Scheepers, CFA
Credit Indices

Markit

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