Austerity experiments ratchet corporate credit risk

03 May 2010

High grade European corporate credit has barely sniffled even as many of the region’s sovereigns have been laid flat out. The consensus opinion is that credit fundamentals are supporting spreads, especially relative to now-risky sovereign debt. But how long can that last as policy makers across the Continent conduct economic austerity experiments that could ultimately threaten the single currency?

Corporate credit — of the non-Greek, non-Iberian variety — has been the relative performer as the sovereign debt crisis has developed over recent weeks. The Markit iTraxx Europe index (itself relatively heavy in names from peripheral eurozone countries) has widened, but only from out from the mid 70bps ...

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