Credit trading remained cautious on Wednesday due to the increased likelihood of a US intervention in Syria after President Obama secured more support in Congress for a military strike on Tuesday.

The Senate Foreign Relations Committee is also scheduled to vote on a resolution today that would give Obama a limited window to conduct a military operation.

These concerns were in part offset by further improved purchasing managers' index (PMI) data for Europe and the UK, which signalled that the eurozone recovery was broad-based and the economy likely to continue to grow in the third quarter.

The UK all-sector PMI hit a new high of 60.7 in August while the final Markit eurozone PMI Composite Output Index rose to 51.5 from 50.5 in July. This was the second successive month the eurozone had a reading above 50, which denotes expansion in business activity.

Credit default swap spreads on the UK tightened slightly by 1bp from yesterday's close to 35bps, however spreads on Italy and Spain widened by 10bps and 5bps to 249bps and 236bps, respectively, despite decent PMI numbers.

Spreads on airliners were trading wider today after Ryanair warned that full year profit would be at the lower end of its target range of €570 - €600m. There is currently no CDS trading on Ryanair, however spreads on British Airways and Lufthansa were 20bps and 7bps wider at 340bps and 160bps, respectively.

Except for concerns regarding Syria, markets are expected to remain wary until the Federal Reserve releases the Beige Book at 2pm Eastern Time. Market participants will be looking for clues on the direction of future monetary policy from this survey of regional US economic conditions.

The Markit iTraxx Europe index is trading flat from Tuesday at 104bps while the CDX.NA.IG index is trading 1bp tighter at 83bps.


Frans Scheepers, CFA
Vice President

Markit

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