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CREDIT COMMENTARY
Jul 22, 2013
London markets heat up
Perhaps it was down to the hot weather or a great weekend for British sport, but the London markets opened the week on a high as the quiet summer period approaches.
It was more likely that positive political developments boosted sentiment. Japanese Prime Minister Shinzo Abe's Liberal Democrat party won a comprehensive victory in the upper house, and the coalition government now has a majority in the chamber.
The result was expected, but it will still be welcomed by global markets as it gives Abe a stronger mandate to implement his expansionary economic policies.
Portugal's coalition government would envy Abe's strong support - it has been teetering on the brink of collapse for weeks. However, a semblance of stability returned over the weekend when the president announced that the two governing parties had agreed to stay together and there would be no snap general election.
Portugal's CDS tightened 40bps to 462bps, over 80bps tighter than its peak on July 12, but still almost 200bps wider than where it was trading two months ago.
The easing in political tensions helped the Markit iTraxx Europe tighten 2bps to 98.5bps, the first time it has breached the 100bps level since late May. Banks and high-beta credits led the way, with very few names giving up ground.
US markets also rallied, shrugging off tepid results from McDonald's. The fast food chain is a very strong credit - it is the second tightest name in the Markit CDX.NA.IG index - and its spreads were more or less unchanged at 18bps.
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