European corporate credit spreads contract; retail sector sees negative basis

Credit default swap levels for the European corporate sector are tightening again, according to London-based traders. In relatively light flows, the cost of protection for industrials, retailers and utilities narrowed between 3 basis points to 10bp in trading this week.

Credit protection spreads have remained relatively tight since the turn of the year, despite falling equity markets. This trend was reversed last Friday when an S&P report on pension fund liabilities for European corporates sparked protection buying in the market. From yesterday, traders noted another reversal in market sentiment following better US equity markets yesterday, causing spreads to contract.

Credit spreads on European retailers reacted to Monday’s news that French retailers Casino

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