Credit has been underperforming equity in recent weeks, and the trend continued today amid LBO rumours and weakness in the banking sector.

European media names are generally low-beta and large spread movements are relatively rare. So it was somewhat surprising to see the likes of Wolters Kluwers (88bps, +10), Reed Elsevier (75bps, +) and Pearson (80bps, +6) - all solid investment grade credits - widening sharply today.

Traders reported that buyout speculation is surrounding Wolters Kluwers, although there was no concrete news supporting the rumours. Reed and Pearson seemed to get dragged along for the ride.

Wolters has the smallest market capitalisation and the weakest balance sheet of the three, which perhaps explains the interest. However, the speculation could turn out to be groundless, as was often the case during the LBO boom of 2005-2007.

The bid to take Dell private, which was the main trigger for the current round of rumours, is still up in the air. Whether it is successful or not could have a major bearing on credit performance.

Banks are at the opposite end of the beta scale, so it was to be expected that they would widen in a risk-off day. But the movement was a little surprising given the news from the ECB today. The MRO allotment from the ECB was lower than consensus estimates at EUR124 billion and confounded expectations that banks had rolled into the facility after the large repayments of the three-year LTRO last week. However, we will get a clearer picture after the results of the three-month LTRO borrowings are published tomorrow.

This perhaps explains why peripherals banks spreads failed to tighten today. Persistent negative sentiment around Italian bank Monte dei Paschi di Siena has also place upward pressure on spreads. The bank's derivative losses have unfolded into a political scandal, and Monte Paschi's capital position is coming under increased scrutiny. Monte's spreads are now trading around 470bps, over 70bps wider than when the losses were first revealed.

Awful retail sales figures in Spain and lower than expected US consumer confidence capped off a negative day for credit. Market focus will now turn to Facebook earnings tomorrow and the plethora of crucial economic releases later this week.

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