Investors are remaining faithful to the credit-default swap market, in spite of a sharp increase in chatter about leveraged buyouts and mergers and acquisitions--usually connected with spiraling credit spreads. CDS traders last week expressed surprise at continued two-way investor appetite, despite the potential for credits to widen dramatically on the back of takeover news. "I'm absolutely astonished," said one trader at a U.S. house in London.
Spreads have widened significantly on a number of LBO-linked corporates, including Danish telecom TDC and Dutch logistics company TNT, but the movement has not unnerved the market. "Rather than have a knock-on effect, the names have remained isolated," said one trader, adding many in the market predicted an onslaught of LBO activity to tip the credit cycle. "The market is holding strong and this is surprising a lot of strategists," agreed another official.