These niggling concerns over the composition of the results of US financial institutions did not prevent all this positive sentiment flowing through to the Australian credit market. The Aussie iTraxx closed at 305 bps on Thursday night, well down from its peak of 444 bps on March 10.Moreover, nabCapital said on Friday that short covering is now evident in the market, citing the sharp contraction in major bank CDS spreads to the low 130 bps for senior debt and the low 170 bps for subordinated debt. The chart below illustrates recent performance of the subordinated debt CDS of the four major banks.NAB also noted that secondary market spreads for the four major's GG bonds had contracted to 52 bps for three years and 57 bps for five years. While this is another positive indicator of improving conditions in the local market, it might also reflect an absence of new supply, now that the banks are in their black-out period ahead of reporting their first half results next month. We note that on Friday night Citigroup and GE continued the run of better than expected results. Citigroup reported a first quarter loss of US$0.12 per share before one-off items against average analyst expectations of a loss of US$0.30 per share and GE reported a profit of US$0.26 per share against expectations of US$0.21. Citigroup's result was helped by a favourable revaluation of its debt, the market value of which has declined with Citigroup's quality.