Credit spreads at pre-Lehman levels as US sentiment boosted by CIT rescue

EUROPEAN credit derivatives continued their revival yesterday, with spreads on the Markit iTraxx index reaching levels last seen prior to the collapse last year of Wall Street investment bank Lehman Brothers.<br /><br />The series 11 Markit iTraxx Europe index, tracking the cost of insuring against default on 125 investment-grade borrowers, reached 101/102 basis points yesterday afternoon, after closing on Monday at 104 basis points. The recovery not only puts the index at its tightest level this year, but also moves it beneath the 102.65 basis points it was at on 12 September last year, the day before Lehman Brothers went down.<br /><br />Such a rally suggests that confidence in companies making good on their debts has returned following the shockwaves sent around the world by the collapse of Lehman.<br /><br />The credit derivatives revival was helped by positive news from the US, where struggling bank CIT confirmed that it had secured a $3bn loan from bondholders to avoid bankruptcy, preventing a collapse which would have hurt thousands of US firms.