Credit spreads on the main European iTraxx index dipped below 30 basis points on Monday for the first time in three months. Traders said the barrier was broken after a rally in the cash equity markets filtered through to CDS and investors still active in the quiet summer months picked up protection selling strategies. One trader attributed the positive sentiments to declining oil prices and optimism over the ceasefire in Lebanon.
On Wednesday, the cost of five-year default protection on the indices was 29.03 bps, 1.5 bps tighter than the week before and 3.77 bps from a month previous.
"With lots of people out the market is thin and the itraxx moved further than it might have normally," said one London-based trading official. "It went a lot lower when people weren't looking," added another trader. There has been some interest in bottom-fishing at these levels, traders reported.
