The price of protection on North American credit-default swap indices, as well as component names, drew in broadly last week ahead of this week's bi-annual CDX roll. Indices tighten on the way into every roll, traders said, but the CDX and underlying were tighter than usual. "We're seeing a huge amount of selling going into the roll," said one New York trader. "It just feels like people don't want to be short."
Players were particularly interested in selling five-year protection on Cendant, a leading provider of real estate, rental car, timeshare and travel services, rated Baa1 byMoody's Investors Service and BBB+ by Standard & Poor's and Fitch Ratings. Spreads pulled in more than 50 basis points in just a few days last week, traders said. The selling craze followed the company's announcement of a new USD2.38 billion credit facility and issuance of USD1 billion in senior unsecured bonds to reduce asset-backed debt. But, it was also part of a general tightening. Domtar traded 50 bps tighter Thursday and Georgia Pacific 20 bps tighter.
Spreads on the seven- and 10-year CDX drew in overall, but the price of protection on the 10-year 3-7% tranche widened on several big trades. Deutsche Bank and JPMorgan were reported to be buying protection in that tranche to hedge combination notes, traders said. "Normally it would come in tighter," said one New York trader of the tranche. "It's a little messy this time because there have been some structured products out there that are causing the 3-7% to move up."
