Many credit derivatives traders were caught be surprise last week when five-year credit protection on biotechnology corporate Monsanto Co. exploded to 96 basis points last Wednesday from 40bps where it had traded only two days before. While Monsanto is known to have problems, particularly its ongoing litigation with its former chemicals division Solutia, this fact has been well known for a while and does not explain such a huge, sudden shift, noted one New York-based trader. Protection on Monsanto gapped out following a stampede of protection buying on the name, as though suddenly exposed players had a delayed reaction or the need to protect themselves, said another trader.
John Rogers, senior credit officer at Moody's Investors Service in New York, which rates the corporate Baa1, said the move is likely a result of a Solutia conference call the previous week, which raised concerns about liquidity. As a result several analysts increased their estimates on how much Monsanto is exposed to the firm, he said.
