The price of credit protection on J Sainsbury fell last week after the U.K. grocer published a positive trading statement. The upbeat news from the struggling retailer prompted institutional and speculative funds to sell credit-default swaps on the name. In response to the sell-off, the price of CDS drew in to 105 basis points last Thursday morning, from 130 on Tuesday.
Traders reported, however, selling of Sainsbury credit protection had begun earlier in the week, before the trading statement was published. The CDS market in general had a volatile week, with spreads across the board widening on Monday and Tuesday. Sainsbury was caught up in this, explained traders. "A lot of people were caught long and so we saw some profit takers on the sell side," noted a trader at a German house. But market officials were also not convinced Sainsbury's trading statement merited tightening to 105 basis points. "From here I think we have probably come in too far," said a trader, who said Sainsbury was being carried along by the general market trend.
Claire McGuckin, credit analyst at ABN AMRO in London agreed the trading statement was well received in the market. But she added, "At the moment, [the CDS move] is ruled by overall market dynamics, rather than anything specific to Sainsbury's name." One trader said it's impossible to guess where Sainsbury CDS might move next. "The market as a whole is very difficult to predict right now," he added.
