Levels for five-year protection on International Paper tightened early last week, despite the company's announcement on March 29 that first quarter earnings would be lower than previously projected.
The company has had a difficult first quarter due to the general U.S. economic downturn, high energy costs and the continued strength of the U.S. dollar, which has curtailed exports. Jared Epstein, v.p., credit derivatives trading at Morgan Stanley in New York, said that prices for five-year protection were quoted at about 80 basis points/90bps on Wednesday. These levels have tightened about 10-15bps over the past month, as some hedgers believe that corporate credit in general is under-priced in the credit derivatives market. International Paper is one of the more liquid names in the market, said Epstein.
Trading on International Paper was relatively light last week, said a trader in New York. There were a few trades, with average notionals of USD5-10 million, that printed in the mid-80bps region, he added. Epstein declined comment on these trades in particular, but said generally insurance companies, banks and hedge funds have been showing an increased interest in purchasing long-term credit risk on corporates, due to the perception that this risk is a good buy at the moment.
