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Derivatives

Carrefour Protection Jumps On Law Review, Poor Results

The price of protection on French supermarket group Carrefour jumped last week, on a combination of a poor third-quarter and concern a law protecting supermarkets' profit margins could soon be changed.

The price of protection on French supermarket group Carrefour jumped last week, on a combination of a poor third-quarter and concern a law protecting supermarkets' profit margins could soon be changed. The price of credit-default swaps on the name jumped five basis points last Tuesday to 25 basis points, up from 20bps at the end of the previous week. The group announced worse-than-expected third-quarter sales on Tuesday and revealed it would not meet its sales' growth target this year.

Traders reported some interest in buying protection from institutional clients, but said the move wider was led by funds and prop desks buying CDS on the name. The price rise was also fuelled by debate over a French pricing law, known as the Loi Galland. The law states hypermarkets, such as Carrefour, may not sell products at a loss and it has the effect of making the hypermarkets work with suppliers to maintain their margins. The law is said to discourage supermarkets from passing on price cuts to customers and it is the subject of a report that will be published today.

Moody's Investors Service affirmed its A1 rating on the corporate last Wednesday, but noted if Carrefour's margins continue to fall the rating may come under pressure. Standard & Poor's rates Carrefour A plus. Claire McGuckin, credit analyst at ABN AMRO in London, said, "There's a degree of uncertainty in the market, people are waiting for the report to be published on Monday."

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