Markit's iTraxx Crossover index – or 'fear gauge' – of corporate bonds surged 56 basis points to 857 on ThursdayEurope's debt crisis risks escalating out of control as the world economy slides towards a double-dip slump with few shock absorbers left to limit the damage.
By Ambrose Evans-Pritchard
9:25PM BST 22 Sep 2011
Key indicators of credit stress have reached the danger levels seen before the Lehman Brothers failure three years ago, with Markit's iTraxx Crossover index – or "fear gauge" – of corporate bonds surging 56 basis points to 857 on Thursday.
Societe Generale led a further rout of bank shares, crashing 9pc in Paris on concern that it might need recapitalisation to cope with losses on Italian and Spanish debt.
The yield spread between Italian 10-year bonds and Bunds reached a fresh record of 408 basis points before the European Central Bank (ECB) intervened in late trading. It is near the level at which LCH.Clearnet raises margin requirements, the trigger that forced Greece, Portugal and Ireland to request bail-outs.
Global investors appear shaken by the refusal of the US Federal Reserve to come to the rescue yet again with quantitative easing (QE3) even though it was never likely the bank would launch fresh stimulus with core inflation running near 2pc or in the face of protests from Capitol Hill.
The global flight from risk has hit Europe hardest. Peter Possing Andersen from Danske Bank said Europe’s authorities are running out of time. “The financial markets have lost faith in the current policies and the economy is on the verge of a recession. Radical action is needed to short-circuit the negative spiral,” he said.
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