OPEC shock pours fuel on credit-market cinders

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Credit markets are in turmoil amid the coronavirus and an oil-price rout. That adds weight to fears that bank trading limits can exacerbate a crisis, writes LiamWardProud.

The iTraxx Europe Index, which comprises five-year credit default swaps on 125 European investment-grade corporate debt issuers, rose by 24 basis points to 104 basis points by 1730 GMT on March 9, according to IHS Markit data sourced by Refinitiv. That was the largest daily rise in a decade.

The iTraxx Crossover Index, which focuses on high-yield debt, rose roughly 81 basis points to 460 basis points. Credit default swaps are financial contracts that allow traders to speculate on or hedge against a counterparty failing. A rise indicates a perceived increased probability of default. The moves followed Saudi Arabia’s decision to slash its official selling price and raise crude production, signalling the start of a price war, as well as Italy’s move to quarantine some 16 million citizens in a bid to control the coronavirus outbreak.

 

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