Credit-default swap spreads on Lufthansa and Air France tightened last week despite expectations that names in the airline industry would be hit by investors' concerns over the SARS virus. Traders said five-year mid-market protection on Lufthansa contracted to 145 basis points from 175bps, while Air France moved in to 145bps from 165bps. Traders chalked up the tightening entirely to investment banks buying protection on names for a pipeline of structured credit products, including first-to-default baskets and collateralized debt obligations.
Credit spreads across the market compressed, traders said, although they noted that volumes were thin due to the Easter holiday. "We might see a slight retracement next week when everyone returns," said one trader, who noted that he was bored this week because of the dearth of flow.
Virginie Casin, credit analyst at Standard & Poor's in London, agreed that it was mostly technical factors which influenced the tightening in credit spreads on Lufthansa. "I can't really think of any positive news flow for them in the past week," she said, although she noted that the end of hostilities in the Middle East could have aided the tightening. Casin commented that the German carrier had reduced the frequency of its flights to Asia because of SARS, but if that turns out to be only a temporary change, it should not harm the credit of Lufthansa.
Five-Year Credit Protection On Lufthansa
