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CDX HY Movers

20 January 2021 by jbchevrel

Today was a general risk-on session. In the US, the CDX HY s35 index tightened by -4bp as the S&P clearly broke [by almost 1%] above the 3,800 handle. Among CDX HY s35 constituents, was displayed a decent dispersion with Bombardier CDS tighter -90bp, Murphy Oil -25bp and Netflix -22bp, while the fair value of CDX HY is ‘only’ tighter by -3bp. Bombardier CDS was tighter -90bp, as Britain granted Bombardier’s train unit £1.7B in export funding, which the company will use to invest in the factory in Derby [2k staff] after winning a contract to build trains for new monorail lines in Cairo. The loan guarantee will directly support c100 jobs at the plant, that is £17M funding per job saved. Murphy Oil tightened -25bp on the back of the solid rally that’s been taking place in base commodities so far this year. The 1mbd unilateral cut done by the Saudis helps on the supply side, while markets expect the vaccines to lift demand for oil, from this summer onwards. Finally, Netflix tightened -22bp. This was much more significant in relative terms, as this tightening represents 20% of the spread. The move occurred on the back of the solid Q4 results published last night. “We believe we no longer have a need to raise external financing for our day-to-day operations” they said, as the company reported it passed 200m subscribers. NFLX also said that it would explore stock buyback, which in this context, was not a negative for credit, but allowed the stock to gain +15%.

Italy Rally

19 January 2021 by jbchevrel

Italian risk rallied today and outperformed the broader complex. Italian banks SLAC CDS tightened by -8/9bp today and the SUB tightened by an average -12bp. Dealers reported that Italian banks CDS dominated their flow. In EGB space, the 10y spread between BTP and Bund tightened from +116bp to +112bp. In absolute terms, the 10y BTPs are still yielding about 60bp. This relief rally came as it became clearer that the prime minister Conte will remain in office. Yesterday the lower house voted in favor of Conte, something which was broadly expected. Today, it was reported that a group of senators was set to switch allegiance to back Conte’s governing coalition, potentially giving him an outright majority in the Senate. This evening it was reported on the social media that the lawmakers belonging to ex PM Renzi’s movement will effectively abstain in the confidence vote [due any minute], lowering the threshold needed by the PM to win. Renzi’s move to withdraw from the coalition shows that this coalition is not natural, and Conte’s government will be more fragile in the medium term, due to Renzi’s move.

Geopolitics Driving: RUSSIA Update

18 January 2021 by jbchevrel

While the recent rally in energy prices and metals bodes well for Russia’s current account dynamics in 2021, geopolitics reasserted itself as a bearish factor today. Russia 5y CDS widened by +2.5bp on the day to 92.5bp [while comparable South Africa and Saudi 5y CDS were unchanged]. The curve steepened by that amount. Adding to that, the RUB lost more than half a percent vs USD. This is as some focus built up on the come-back of the controversial Putin opponent named Alexei Navalny into Russia today. A Russian court [set up at a local police station in the suburbs of Moscow] ordered the so-called ‘opposition leader’ Navalny jailed for 30 days, despite verbal efforts by US/UK/Europe politicians to free him. Navalny faces 3.5 years [maximum] in prison on charges he breached the terms of a suspended sentence. The European voices including Mrs Von der Leyen’s had the market give some probability to additional sanctions on Russia, as Russian officials including Minister Lavrov made it clear that Navalny had broken Russian law and could not just be freed. Later this month, the fate of Navalny in his trial, may indeed add more risk premium into instruments reflecting Russian risk. Elsewhere, it was a quiet session, with the US out on Martin Luther King day.

Soft Friday: AF-KLM Update

15 January 2021 by jbchevrel

Air France KLM-SA [AFKLM] is an airline company, whose activities include Passenger transport, Cargo transport and Maintenance. AFKLM is organized around hubs in Paris and Amsterdam and is at the core of the -70% drop in traffic seen in Europe. Today AFKLM CDS turned wider +40bp, after a relatively firm week. The appetite for airliner risk was notable, as seen on the occasion of the Wizz Air [BBB-n] deal earlier this week, which priced at 1.35% on their €500m 3y bond [order book was €2b]. However, Wizz Air has the highest cash reserves as a share of annual revenue compared to any airline in Europe. Their cash holdings seem enough to cover fixed costs for two years. This Friday’s price action contrasts with the current ‘rotation to value’ which has seen the compression of wider CDS spreads vs tighter ones. A bad news today for European air traffic is that European countries [including the UK] are set to receive fewer vaccines than expected from Pfizer starting next week, further delaying the point at which airliners will ramp up operations. In equity space, this week was marked by some short cutting. According to Bloomberg, Sandbar Asset Management LLP reduced its net short position in Air France-KLM by 20.63% to 2.14 million shares, or 0.50% of the company's stock as of Jan 14, 2021. POINT72 cut its short position in the company. Helikon Investments has the largest short position, with 11.6 million shares, or 2.70%.