Find the discrepancy

13 March 2008 By Edward Hadas Follow @edwardhadas

Even after Tuesday s big rally, credit spreads are priced for Armageddon. Stocks are well down from their 2007 highs, but don t discount anything worse than a mild slowdown. That looks optimistic. The technical problems in the credit market have a created a big opportunity.

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Stock markets rebounded on Tuesday March 18 as the US Federal reserve reduced the Fed Funds rate by 75 basis points. The FTSE100 closed up 3.54%, while the S&P 500 closed up 4.24%, the largest one day percentage gain since October 2002.

Creditdefault swaps on the Markit iTraxx Financial index of 25 European banks and insurers dropped 20 basis points to 141.25, according to JPMorgan. The Markit iTraxx Europe index of 125 investmentgrade companies fell 13 basis points to 145. Both were at a record yesterday.

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