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CREDIT COMMENTARY
Jun 25, 2013
China calms febrile market
China's central bank issued a placatory statement on Tuesday, helping to calm the febrile market conditions that it was partially responsible for.
The Peoples' Bank of China underlined that it is still the lender of last resort, stating that it will provide liquidity support to banks that have temporary funding shortages and will apply measures to maintain the stability of money markets.
The tone of the statement marked a clear contrast with its previous comments, where it stressed that the onus was on the country's largest banks to stabilise the situation.
Credit markets rallied on the news, though spreads still have a long way to go to recover all of the ground lost during the recent turmoil.
The Markit iTraxx Europe index was 4.25bps tighter at 128bps, a significant move, but modest in comparison to last week's fluctuations. The index is still more than 40bps wider than where it was trading a month ago and it is far from clear that the danger from China has passed.
Nonetheless, high-beta names with considerable exposure to China were among the main beneficiaries today. Miners Anglo American (211bps, -24) and Glencore (282bps, -24) both rallied, though it should be stressed again that they are still some way off where they were trading a few weeks ago.
More volatility can be expected as the week draws to a close, with pronouncements from various Federal Reserve officials potentially market-moving. Two Fed representatives have already tried to play down the market interpretation of Bernanke's comments last week, and it would be no surprise if more followed suit.
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