Five-year credit-default swap spreads on Corus, a U.K. metals company, tightened 40 basis points last week to 510bps as traders started to price in a positive trading statement issued by the group on Thursday. Corus, which is sub-investment grade, was trading at 550bps on Monday, but as news spread that Corus' six-month trading statement would be positive, protection prices ground in to 530bps. After the announcement spreads came in another 20bps because the statement said the group is expecting to make a profit for the first half of this year, after a loss in the same period last year of GBP57 million (USD104 million), which is more bullish than traders had predicted.
Corus indicated in the statement that it is expecting to make a profit in the next half of the year due to improved European business, which traders said the market had not expected. Protection on the corporate was traded in both directions, with market players including income hedge funds, high-yield funds and bank prop desks, according to a trader at a U.S. bank.
Standard & Poor's rates Corus single B with a stable outlook and Moody's Investors Service has the corporate at B3. Matthew Robbins, credit analyst at Dresdner Kleinwort Wasserstein in London, said, "The expected level of operating profit [in the trading statement] is significantly above expectations...due to continued strength of demand and the benefits of the restructuring and strategic plans."
