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The Odd One Out

14 March 2018 by lberuti

A dozy morning followed by a late sell-off in the afternoon appears to be the theme of late, and today was no exception. Cash is feeling heavy particularly in the financial sector. New issues in the cash market continue to come cheap and tend to reprice secondary. As bonds feel soggy, investors turn to synthetics to hedge their portfolios and they push CDS wider. Italian names underperformed further on the back of Salvini’s statement, who did not rule out including 5-star personalities to form a government. In this gloomy environment, PRUFIN ( Prudential Plc ) was the clear outperformer after it announced the partial sale of its annuity portfolio, healthy FY2017 results, and its plans to split the firm by spinning off its UK operations to create an insurance business focused on faster growth markets in Asia, Africa and the US. The demerger suggests that PRUFIN’s bond stack may reduce, which could also lower the amount of CDS deliverables. The company’s risk premium tightened aggressively after the news, even though it gave back some it gains at midday when the insurer was downgraded by Fitch. 5-year CDS contracts referencing PRUFIN’s senior debt closed 8bps tighter at 42bps, and contracts referencing subordinated debt 15bps tighter at 78bps.