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Qantas Credit Trading Volumes Soars

Credit-default swap trading on Australian airline Qantas Airways soared last week as interbank players reacted to news that the proposed financial rescue of domestic rival Ansett Australia fell through, resulting in the company suspending all flights from midnight last Monday. "Qantas has in effect become a monopoly here, with an 87% market share," noted a credit derivatives trader in Sydney. Last week around 10-12 trades went through the market, in lots of USD5-10 million, whereas in a typical week, Qantas trades two or three times. "It's without a doubt the best positioned airline in the world," said Glenn Hodgeman, head of Australian dollar credit trading at Salomon Smith Barney Australia in Sydney. The spread tightened in from 95-105 basis points before the news to 85-95bps last Wednesday.

Interbank players were behind the trades, noted Hodgeman, "they were putting on either basis trades or selling protection outright." In a typical example, traders would buy the 2009 bond at 155bps while purchasing credit protection at 95 bps, in which they pick up 60bps.

"It's good to say a major Aussie credit is more liquid than its cash," said Pierre Katerdjian, global credit swap trader at Deutsche Bank in Sydney. He noted that credit-default swap trading outpaced trading in the Australian dollar-denominated 2003 and 2007 bonds as well as the U.S. dollar-denominated 2003 and 2009.

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