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CREDIT COMMENTARY
Jul 08, 2013
Markets bounce back from NFP
The credit markets bounced back from the negative reaction to Friday's strong US jobs report, with spreads in Europe and North America rallying across the board.
The Markit iTraxx Europe tightened by 3.75bps to trade under 110bps for the first time since June 19, which was the day preceding the "perfect storm" that hit the credit markets. Investors were spooked by the prospect of the Federal Reserve tapering quantitative easing this year and the better than expected non-farm payrolls numbers on Friday only served to increase the concerns.
However, the markets appear to be relatively comfortable with the monetary policy outlook, at least for now. Comments from ECB President Mario Draghi, where he reiterated that the exit from "our monetary policy stance being accommodative is distant", helped sentiment.
The stabilisation in the eurozone sovereign market also fuelled the recovery. Last week, the political instability in Portugal led to the country's spreads spiking upwards and increased risk aversion across the world.
But the fragile coalition government has held together and the head of the junior party was promoted to deputy prime minister over the weekend. This doesn't mean the danger has passed - there still appears to be little agreement on the austerity policies that have proved so unpopular with the public. Portugal's spreads were steady at 480bps.
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