Credit indices displayed mild tightening on Wednesday as Eurostat, the statistical office of the European Union, published Q4 GDP figures for the euro area.

GDP in the region contracted during the last quarter of 2012 by 0.6% compared with Q3 GDP levels, according to Eurostat. The contraction is even more profound when compared against Q4 2011 figures, where GDP dropped by 0.9% year-on-year.

This level of contraction was expected by European credit markets and can be seen in today's overall spread performance. The Markit iTraxx Europe index tightened 2.9bps to trade at 109.5bps late in the day. The Markit iTraxx Europe Crossover index also displayed a solid performance to trade at 423.5bps, tightening 12bps from Tuesday's close.

Moving across the Atlantic, the death of Venezuelan President Hugo Chavez dominated the newswires on Wednesday. The country's CDS spread was closely watched following the announcement, widening 21.5bps to trade at 660bps early in the session.

This kind of widening is certainly expected and is due to the political uncertainty typically created in the event of the death of a nation's leader. However, the magnitude priced by credit markets is slightly concerning.

There may also be a risk of contagion within the region, as we approach the Venezuelan elections, which must be held within 30 days, according to the Venezuelan Constitution. However, neighbouring sovereigns, Colombia and Brazil, both tightened slightly on Wednesday to trade at 95bps and 125bps, respectively.

Markets will remain tuned to observe how the death of Chavez will affect the credit standing of Venezuela in the medium term.

Akif Ince, Markit Credit

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