A dearth of significant news in the Western Hemisphere on Monday left the way clear for China to dominate the agenda.

The Chinese government published details of its third plenum, and the reforms outlined went some way to allaying the concerns triggered by the oblique communique released last week. Along with the headline-catching changes to the "one-child" policy, the whole package was more radical and comprehensive than most seasoned China watchers expected.

Local government financing - one of the pressure points in the Chinese economic model - will be improved by allowing authorities to issue municipal bonds. The financial sector will be liberalised to an extent, as will state-owned enterprises. How many of the measures will be implemented and in what timeframe is still unclear, but it appears to be a step in the right direction. China's sovereign CDS rallied 6bps to 65bps, the tightest level since March.

The Chinese reform package received a cautious welcome in Europe and the US. The Markit iTraxx Europe tightened below 80bps and the Markit CDX.NA.IG broke through 70bps, but the rally lost momentum and the indices were little changed from the previous day.

Banks were among the strongest performers, but figures from the Bank of Spain showed that asset quality is still serious issue in the periphery. Non-performing loans in Spanish banks accounted for 12.7% of lending in September, up from 12.1% in August and 10.7% a year earlier. The Bank of Spain has introduced more stringent requirements around NPL classifications, and this has contributed to the increase.

Santander and BBVA both have NPLs below the Spanish average and saw their spreads tighten today to 154bps and 160bps respectively.

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