Five-year credit derivatives on retailer Sears, Roebuck widened roughly 75 basis points last week, on concerns the sluggish U.S. economy and anemic stock market will deter retail customers from spending, according to traders. Mid-market credit-default spreads began the week at around 105bps before widening to 180bps and then tightening to the 150bps level by late Wednesday in New York. "It started to widen out on recessionary fears, that people will be keeping cash in their pocket," said one trader in New York.
The Federal Reserve's decision on Tuesday to keep short-term interest rates on hold, rather than cut rates as equity market bulls had hoped, sparked the widening. And Sears was hit a bit harder than other retail names because a large component of its revenue also comes from its credit card business, which investors fear would also be hurt by a prolonged slowdown.
The spread widening does not appear to be due to any credit-specific news, according to a retail credit analyst at a European bank. "A lot of their business is in the big-ticket side of the retail business, so people may pull back on buying those things," she said. In addition, Sears is in the process of renegotiating a USD4 billion credit facility and sellsiders involved in the revolver may have bought protection to hedge themselves on the loan, driving the spread wider.
Five-Year Protection On Sears, Roebuck
