European credit spreads remain tight

Spreads in the credit derivatives market continued to stay tight in Europe this week, based on expectations of a swift war in Iraq. London-based traders said overall liquidity has remained very thin since the official start of the conflict on Wednesday.

The upswing in equity prices has continued to contribute to positive market sentiment in the credit markets, reducing the demand for protection. London markets moved higher this morning after reports that US and British forces were closing in on the Iraqi southern city of Basra and could be in Baghdad as early as Monday.

The cost of credit protection for European corporates started to tighten on Wednesday. Traders said since the initial tightening, spreads have remained largely unchanged, with

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