Offers of protection remain thin in subdued credit markets

Credit default swap spreads have tightened again in Europe in the second half of this week, but markets have remained thin and subdued, say London-based credit derivatives traders.

Sentiment in the credit derivatives markets continues to be war-driven and has closely shadowed the fortunes of the equity market. At the start of the week, spreads widened across a range of sectors by 2 basis points (bp) to 5bp in line with falling equity markets, which slumped due to fears of increased resistance to the US-led invasion of Iraq. Towards the end of Wednesday credit spreads began to tighten, in line with renewed reports of coalition progress.

“We are seeing very little activity