Data Points is a news-driven report prepared by Tradeweb. Information for Data Points is aggregated across Tradeweb’s database of real-time fixed income and derivatives trading activity from the world’s largest dealers.
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As the BP oil spill now enters its third month of uncontrolled gushing into the Gulf of Mexico, the enormous financial impact of the incident has begun to take its toll on the credit risk of the entire oil industry. By tracking asset swap spreads for a representative group of oil and exploration companies that includes BP, Shell, Total and Repsol, Tradeweb has found that even companies unrelated to the Gulf spill have seen their spreads widen dramatically.
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Despite the sweeping bailout package and a government bond buying spree by European central banks, the Euro-Zone crisis is starting to impact corporations' ability to raise new capital. Spreads have widened considerably on credits for corporations based in the peripheral Euro-Zone countries - Portugal, Italy, Ireland, Greece and Spain - relative to those in the core European markets of Germany and France according to Tradeweb data.
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As the Euro-Zone credit crisis intensifies, the interest rate swaps market is showing resilience, according to Tradeweb. Globally, trading in all interest rate swaps on the Tradeweb platform has increased by more than 60% year to date compared to the same period in 2009. Average daily trading volume now exceeds $5 billion, with a DV01 average of more than $2 million in May.
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The inflation-linked security market is showing signs of renewed activity, following the increase in UK CPI reported this year. UK inflation increased from 3% to 3.4% in March and market participants have been increasing their participation in the Index-linked sector to express their views on the future of inflation and real rates of return in the UK.
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The short end of the U.S. Treasury market is showing signs of renewed activity, following the slight increase in yields over the past few weeks. The marked response to the modest change in the interest rate environment is an indication of the yield sensitivities in the marketplace. While bill yields are still less than 0.25%, it appears from activity on Tradeweb that this has been enough to draw buyers back into the market - either as a safe haven or for at least some positive return on investment.
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The end of the federal government's mortgage buy-back program has taken the market's biggest client out of the market, but activity is bouncing back. While the absence of explicit central government support for the TBA mortgage-backed securities market is significant, other factors, including the recent Fannie Mae/Freddie Mac prepayment program, could play a role in the return to normalcy.
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Greek bond spreads have widened considerably in the past three months, amid more widespread concern from fixed income investors about the Eurozone debt crisis. The spread to Germany, which just two years ago was only 50 basis points, has ballooned to more than 250 basis points today, according to Tradeweb data.
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Despite persistent concerns around the European credit crisis, liquidity in the U.S. Treasury markets is at the best levels seen since September 2008, according to Tradeweb data. Tradeweb has noted a considerable improvement in U.S. Treasury liquidity by tracking three key variables: