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Inference

19 April 2018 by pdonnat

European synthetic credit market added in March 11 new high yield reference entities to its trading catalog. The new names represent 11 out of the 12 additions to the new series of the European Crossover index. The last one addition is a fallen angel (TDC A/S). After a month, the roll was march the 20th, the trading of these new names is still rather subdued and a sort of disappointment for market participants. It is hard to assess the true activity. The tip of the Iceberg is the reported cleared volume by LCH CDSCLear, the only CDS clearing house offering to clear these new names. Out of the 11 names, WIND TRE S.P.A. and Verisure Midholding AB are the only one with reported open interests as of yesterday according to OTCStreaming. Some of the new names are well known special situations in the European high yield community. These entities have large bond issues like Picard Bondco S.A. with a 1.2BEuros 5Y FRN issued late last year. But the derivatives community is not familiar with these names especially due to the lack of time series. DataGrapple infers for these entities an alleged time series using the "best" benchmark. The choice of the benchmark is not obvious. In some situation a benchmark is not relevant. For STEINHOFF EUROPE AG, Datagrapple team decided to use NEW LOOK SENIOR ISSUER PLC as the best proxy to backward infer a time series (see the attached the grapple). DataGrapple provides estimates for all the new CDS entities, hopefully it helps to make some rough estimate of their risks.

A Long Overdue Consolidation

18 April 2018 by lberuti

Like every third Wednesday of the month, today was option expiry day in creditland. Even though iTraxx Main series 28 spent the day wrapped around 45bps, this level was not a big option “pin” – ie a strike with an important option open interest - and it did not trigger any technical trading as a result. It was a benign expiry session, even though the tone was weak for most of the day, and indices closed wider for the first time in almost two weeks. It all started yesterday afternoon after a few buy-side institutions came and took profit on some of their long risk positions on credit indices. It spilled over into today’s session. To be fair, despite equities chopping around but ultimately maintaining their upward trajectory, a bout of profit taking was overdue. iTraxx Main has tightened by 10bps - from 62bps on the 26th March to 52.5bps yesterday – almost in a straight line.

Four-Week Old And Not Trading

17 April 2018 by lberuti

It was another strong day for Corporate and Financial synthetic credit instruments. The price action was relentlessly strong, although the pace of the tightening of risk premia does feel like it is starting to slow down a bit now. Investment grade spreads were unchanged to 3bps tighter, while high yield spreads were unchanged to 15bps tighter. There was some two-way interest on most credits and buyers of single reference CDS are no longer on strike. So much so that some arbitrage activity took place on the iTraxx Crossover index, where arbitragers bought index protection and sold single name protection. But it was confined to “off-the-run” series, as it seems the recent additions to iTraxx Crossover Series 29 have not found a clearing level yet. The market makers are still quoting wide bid-offer spreads and appear very reluctant to buy or sell risk on any of them.

Is Private Equity Coming?... Hooray! … For Once

16 April 2018 by lberuti

ENFP (Bouygues SA) is rumoured to be considering a bid with other investors for ALTICE’s ( Altice NV ) struggling French unit – SFR -to consolidate the telecom market. A deal would enable ENFP to take out a key local competitor and add customers in a market where profits have been squeezed by a stiff four-way rivalry. Since Iliad introduced super cheap offerings in 2012 under the Free brand, a fierce price war has taken place. Such an operation would help ENFP close the gap in terms of subscribers with Orange SA, the main operator in France. ENFP could team up with CVC Capital Partners. Usually, rumours of private equity group entering the fray send a shiver up credit investors’ spine. But such have been the worries regarding Mr Drahi’s group in recent months which faces an exodus of customers and has to tackle a €31Bln debt pile, that disenchanted investors cheered the rumour and sent ALTICE’s 5-year risk premium 23bps tighter at 441bps and SFR’s 25bps tighter at 406bps.