The Cypriot bank levy saga continued to occupy headlines on Wednesday after the national parliament blocked the proposal. The vote was held yesterday with 36 members of parliament rejecting the bank levy whilst 19 MPs refrained to vote.

Republic of Cyprus trades in points upfront within the CDS market, although trade volumes are currently very low. Cyprus' CDS levels have rocketed since last weekend when the bank levy attempt was first announced. The 5-year maturity CDS currently trades at 29.5 points upfront which is more than 8 points upfront wider than last Friday's closing level.

Credit markets are now curious on what possible next steps can be taken by the Cypriot government, the eurozone countries and the IMF to sustain the eurozone's unity.

A fourth variable in this equation is Russia - the sovereign has vested interests in Cyprus. The two countries are already in talks of a new loan after Kremlin criticised the bank levy proposal.

Russia is a solid sovereign credit with high volumes of trade activity, although its CDS spreads have widened 9bps to trade at 157bps late in Wednesday's session.

The Markit iTraxx Europe Series 19 index traded at 118.8bps late Wednesday in its first day of trading.

Moving away from the periphery, the Bank of England published minutes for its March monetary policy committee meeting. The central bank kept interest rates at 0.5% with an agreement from all committee members.

However, Sir Mervyn King was on the minority side for a vote to maintain the current QE package of "375 billion. The Bank of England Governor, with two other committee members, was in favour of increasing BoE's firepower by another "25 billion.

Chancellor George Osborne endorsed a new remit for BoE in his announcement of the 2013 budget today. BoE can now function in a similar way to the US Federal Reserve in the context of providing economic stimuli.

The Markit iTraxx and CDX index families have now rolled into their respective new series which are live and trading.

As we approach the end of the week, credit markets will keep a close watch on headlines around Cyprus and eurozone stability. More spread volatility is expected.


Akif Ince, Markit Credit

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