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Derivatives

Volkswagen CDS Tightens Despite Poor First-Half Results

The price of credit default protection on Volkswagen tightened last week despite poor first-half results and a profit warning from Standard & Poor's. This is largely because the market had already priced in poor figures, according to traders.

The price of credit default protection on Volkswagen tightened last week despite poor first-half results and a profit warning from Standard & Poor's. This is largely because the market had already priced in poor figures, according to traders. Credit-default swaps on the name come to around 71 basis points at the start of the week from 74bps prior to the corporate's announcement on the previous Friday.

The auto maker was well bid in both directions, noted traders. "Part of the rally was caused by people looking to cover their short positions," said one trader at a French bank. There was interest in the manufacturer across the market, he added, but particularly from German accounts. Many corporates published positive first-half statements last week and the general trend was the tightening of credit spreads which helped Volkswagen, explained another trader. "The market acted with relief," said Vivek Tawadey, senior credit analyst in fixed income at BNP Paribas in London. "They were mildly surprised on the upside, the results were better than expected," he added.

Standard & Poor's affirmed Volkswagen's A minus rating last week. The ratings agency downgraded the corporate on June 15 from singe A. Moody's Investors Service rates Volkswagen A2, following a downgrade on July 2 from A3.

Five-Year Protection On Volkswagen

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