Credit-default swap spreads on Japanese banks tightened significantly in brisk trading last week on the back of improving sentiment on the economy. "This has probably been the most active week this year," said one credit head at a major international house in Tokyo, adding that overall trading volumes have been subdued as a result of chronically tight spreads.
"It looks like banks may have finally turned the corner," said a credit trader at a European house. In particular, five-year credit-default swap spreads on UFJ Bank subordinated debt tightened to 80-90 basis points last week from 94-97bps two weeks ago. Some USD100 million in protection traded on UFJ last week, representing a more than trebling of recent weekly volumes. Other bank names that were actively traded last week include Mizuho Bank and Sumitomo Mitsui Banking Corp.
Standard & Poor's decision mid-week to raise Japan's debt rating outlook to stable from negative helped propel the rally, traders noted. "These names were moving before the comments but this helped to maintain the momentum," said a trader at JPMorgan. Naoko Nemoto, director in the financial services group at S&P in Tokyo, said, "I'm slightly positive on the banking sector, as bad loans are declining due to the recovery of the macro-economy." Stronger company earnings and a sharp drop in corporate bankruptcy is now being reflected in the improving outlook for the banking sector, she added.
Five-Year Credit Protection For UFJ Bank
