United Airlines' bankruptcy filing last week caused investors to purchase protection on related names. Five-year protection on Rolls Royce, which makes airplane engines, blew out to 175 basis point/185bps Wednesday from 140bps/160bps on Monday. Default swaps on Bombardier also widened to a low of 500bps from 455bps/460bps, protection on Disney widened to 87bps/97bps from 68bps/78bps and swaps on Boeing widened to 65bps/80bps from 50bps/75bps. A trader explained Disney is linked to the airline industry because it owns aircraft which it leases to airlines.
European airlines were also affected by the news. For example, five-year credit protection on Lufthansa widened slightly to 125bps/130bps from 110bps/120bps. Lufthansa is linked to United because it is in the same alliance and United covers a lot of Lufthansa's transatlantic routes, a trader said. The protection buying was a general sentiment move, traders said, adding that future movement would depend on news that comes from United in the next few weeks. In general, volumes in the credit-default swaps market were low ahead of year end, so it was only a handful of trades that caused spreads to widen in each of the names.
