Banking on it

2 March 2007 By Edward Hadas

Spreads have widened in the last few days as fear set into markets. But the higher yields have also attracted buyers. Banks have responded by taking a longerterm view. The stabilising mechanism seems to be keeping panic at bay.

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Credit spreads stabilised March 2 after a correction that lasted a week. The iTraxx crossover index, which measures the typical yield premium of European junk bonds, hit a record low February 22 at 171 basis points. Spreads widened slightly over the following three days and on February 27, the day the wider equity market turmoil began, the index widened to 201 basis points from 185.

After that point, spreads became more volatile. On February 28 the index traded up to 236 basis points before closing at 207. On March 1, spreads widened to 227 basis points during trading. On Friday afternoon, the index was trading at 218 basis points.

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