Credit-default swap trading was thin last week as many investors and traders were still on holiday. Even U.S. homebuilder Lennar Corp.'s announcement it expects to see a loss in the fourth quarter failed to stir the market, with credit-default swap spreads on the name remaining flat in spite of turbulent trading in its stock.
Stuart Miller, president and chief executive of Lennar in Miami, Fla., announced the expected loss Tuesday noting the company expects housing market conditions to worsen. Traders said the comments could have sparked interest during normal trading conditions so the lack of protection buying on housing-related names last week was more an indication that players are on holiday. "If a couple more names report the way Lennar did, we could see some activity," reflected one trader, declining to speculate on how likely bad news from other builders might be.
Susan Berliner, analyst at Bear Stearns in New York, said the firm is recommending overweight positions on the sector as a whole in the long term but underweight investment-grade names like Lennar. "It's a relative value call," she explained, adding, "In the short term we would be more cautious." Standard & Poor's rates the firm BBB and Moody's Investors Service has it at Baa2.
Aside from Lennar, Ford Motor Co. was one of the only names in the U.S. to attract some protection trading interest over the holiday period. Expectations its December sales figures would be up led some credit investors to sell some protection on the name. CDS spreads on Ford drew in 9 basis points to 520bps after the Christmas holiday and remained unchanged when sales figures were released Wednesday.
