Euro Credit: A happy New Year as cliff talks go to the wire?

LONDON: Welcome to the final day of what has been a torrid 2012 for credit market participants. With the whole of Europe off and UK markets closing at noon GMT it is, as one would expect, a quiet New Years Eve morning for synthetic markets, and as of 0930GMT according to Markit, the iTraxx Main index is 0.5bp wider at 117bp, the Crossover index is 1bp wider at 479bp and the Senior Financials index is 1bp wider at 142bp.

But it really is not about Europe at the moment, which given the events of 2012 in general makes a nice change. No, as has been the case throughout December, all eyes are on Washington and fiscal cliff.

As is the case in all Hollywood thrillers, the sands of time are hurrying quicker than ever through the giant fiscal cliff egg-timer. With just one day left before the deadline expires and the American economy hurtles over the cliff and back into recession, Democratic and Republican leaders gave some pessimistic updates on the talks to the Senate on Sunday afternoon, dashing earlier hopes that a deal on its way.

The main sticking point between Republicans and Democrats remains whether to extend existing tax rates for everyone, as the Republicans want, or just for those earning between USD250k and USD400k, as the Democrats have proposed.

And so, as we have been saying all month, the negotiations on the cliff are going down to the wire, but one suspects that the propensity to stop the clock just before the last grains of sand slip through the egg-timer is still there. Whatever happens, it looks likely to be a volatile start to 2013 on Wednesday.

All that remains today is to wish everybody a happy, and hopefully prosperous, New Year.