European credit markets staged a tentative rally ahead of the latest minutes from the US Federal Reserve.

Afternoon reports that the ECB is discussing negative deposit rates may well have added to the positive momentum. ECB policy makers have raised the possibility of cutting the deposit rate - currently at 0% - to -0.1%, according to the reports.

ECB President Mario Draghi said earlier this month that the central bank was "technically ready" for negative deposit rates. Such a measure is one of the few tools left that the ECB has to try and stimulate lending. Whether they would want to use it so soon after cutting the refinancing rate to a record low of 0.25% is debatable. There is apparently no consensus on this issue within the ECB Governing Council and it is likely to face considerable opposition from the German members.

The Markit iTraxx Europe was 1.5bps tighter at 81bps after the ECB news emerged. For most of the day, the markets were treading water as they awaited the minutes from the Fed, due after the European close. As ever, the Fed statement will be closely watched for clues on the timing of QE tapering -- the consensus is still that the Fed will begin to slow the pace of asset purchases in March 2014. Anything that is deemed to change the outlook could have a significant effect on spread direction.

JC Penney provided the main highlight in single names after it posted third-quarter results. The struggling US retailer reported a loss for the period and sales also dropped. But the company's outlook was bullish - at least by its standards - and same-store sales are expected to improve in the current-quarter, along with profit margins.

The firm's spreads rallied 139bps to 1190bps, and have now tightened by almost 500bps over the past month. But this is still a level indicating serious credit distress, and JC Penney will have to show sustained improvement if its spreads are to return to more respectable territory.

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