Credit default protection pricing on Japanese banking group Sanwa whipsawed last week following the firm's issuance of a USD2 billion 10-year bond, according to credit traders in Tokyo. Five-year credit default mid-market swap spreads blew out from some 40 basis points when the bond was issued to 55bps, then tightened to 47bps last Thursday. "Sanwa's the story of the week," noted one trader in Tokyo. Sanwa is rated A3 by Moody's Investors Service.
Investors looking to hedge their bond portfolios were typically buying five-year protection on Sanwa, although there was also activity in the long end of the curve. However, the activity hasn't been limited to just one bank. "In general, senior and subordinated credit on banks have widened over the course of the week," said Sam Vulakh, credit derivatives trader at Bear Stearns in Tokyo. He added that due to a dramatic tightening in the past few months and recent issuances of subordinated debt, spreads have recently eased.
Separately, pricing on five-year credit protection on Malaysian oil company Petronas tightened by some five basis points last week on expectation that Moody's will raise the company's credit rating above that of the sovereign. Five-year default protection on Petronas narrowed to 140-150bps last week, versus 145-155bps for five-year sovereign credit protection. In addition to the expectations of a rating change for Petronas, Malaysia's government is rumored to be eyeing a capital market issue, said traders. Moody's rates both Petronas and Malaysia Baa2.
