Japan Credit Index Volumes Plunge On Sanyo Blowout
Volumes on credit index iTraxx CJ have slumped in recent weeks, according to Tokyo dealers, following the ballooning of credit spreads in Sanyo Electric, a component of the index.
Volumes on credit index iTraxx CJ have slumped in recent weeks, according to Tokyo dealers, following the ballooning of credit spreads in Sanyo Electric, a component of the index. "I suspect trading volumes have gone down by 50 to 60%," said a credit head at a bulge bracket house, commenting on the index. "It seems that many users have become gun-shy."
Sanyo five-year CDS blew out to as wide as 650 basis points a month ago from under the 200bp level to a due to financial losses and concerns over the company's ability to service debt. Last month Standard & Poor's cut the electronic maker's long-term credit rating to BB from BBB minus.
The volatility in the credit moved the typically tight and stable index from the low twenties to over 30bp last month and slowly back down to a mid of 26.5 for the five-year contract last week. "It got a little too wide for some Japanese investors," said a trader at Mitsubishi Securities in Tokyo, concurring that clients have steered away from the index to avoid exposure to Sanyo. However, dealers noted the credit was stabilizing last week, on news that the company is in talks with Goldman Sachs regarding selling a stake in its financial unit to raise funds. Sanyo was at a 300-350bp bid/offer last week for five-year protection.