Credit-default swap trading on Nippon Steel surged early last week after Japan Metals & Chemicals filed for court protection against creditors on Feb. 22. Nippon has an 8% stake in the company. Traders said that domestic corporates with exposure to Nippon Steel were behind the trades, which totaled around JPY7 billion (USD52.1 million notional) in five-year yen-denominated default swaps. In a typical week the average volume is JPY1-2 billion. The spread on five-year protection blew out to 120-135 basis points Wednesday from 105-115bps the week before.
"Spreads have been widening across the board," said Stephane Delacote, head of credit derivatives at BNP Paribas in Tokyo, noting that Japanese defaults-swap spreads have widened by about 10% in the last week as corporates are unloading bond positions to generate cash before the fiscal year ends on March 31. "There's a lot of window dressing going on," noted a trader at a U.S. house in Tokyo, adding that a number of corporates are unwinding cash bond positions as well as buying credit protection to hedge credit exposures.
