The price of protection on U.K. supermarket J Sainsbury jumped 14 basis points last week in response to a negative research report and data showing rival Tesco had gained significant market share. The credit-default swap price started at 76 basis points last Monday and was at 90bps when DW went to print on Friday.
Traders reported there was interest from institutional clients, hedge funds and prop desks in both buying and selling protection. Hedge funds were putting on curve flatteners, in which they bought short dated protection and sold long dated.
The bad news for Sainsbury's started with the publication of a negative research report on Tuesday, by U.K. investment house Panmure Gordon, which stated Sainsbury's profit would be around half previous City estimates. This triggered a 10 basis point move in the CDS to 80bps It then jumped to 90bps on Wednesday, after data company TNS Superpanel published disappointing market share figures for Sainsbury's. The store has 15.3% of the market share, down 0.6%, compared to market leader Tesco which gained 1.2% to reach 28%.
Standard & Poor's rates Sainsbury's BBB plus with negative outlook and Moody's Investors Service rates the supermarket Baa2 also with negative outlook. Hugues de la Presle, analyst at Standard & Poor's in London, said, "The bottom line is that we're worried, like everyone else, about [Sainsbury's] competitive position." He added, "If we feel that's likely to come under pressure, it will affect our rating."
