US and European credit derivatives markets remain muted

Default protection costs continue to tighten in both the US and the European credit default swap market in line with the cash market, traders said today, adding that volumes continue to remain relatively muted, particularly in the European markets.

Default swap spreads have now been tightening for over four weeks. Average default spreads narrowed an additional 14bp for the covered universe of US credit last week, according to Martin Gonzalez, a credit derivatives analyst at Bank of America in New York. Gonzalez said the narrowing in the default swap market reflects re-pricing relative to the bond market, which has seen notable inflow of cash buyers following the interest rate cut, the Republican sweep in last week’s mid-term elections and