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Another Day Another Record

13 August 2018 by jbchevrel

Turkey was under pressure today again, the 5y CDS was bid above 600bp at some point, slightly after noon in London. There was $756M reported cleared notional according to OTCStreaming. Today’s move takes the YTD to +420bp on the 5y and +84% on $TRY. Over the weekend, the Turkish Finance Minister Albayrak reiterated that he was against capital controls. Erdogan had made it clear earlier that he is against rate hikes. Their strategy is to desperately try to prevent/punish TRY shorts, rather than pushing through tangible measures to bring back investor confidence. Today’s sell-off was different from Friday’s in the sense that it looked more idiosyncratic than systemic. Among CDX EM constituents, we have had two distinct buckets: the ‘high-yielders’ (TURKEY +130 ARGENT +60 LEBAN +33) and the others (-5/+10). Elsewhere, risky assets were down but to a lesser extent than on Friday (Main +1.5 IG +1 SPX -0.1% SX5E -0.5%).


10 August 2018 by jbchevrel

Turkey was under pressure today again, with the 5y CDS wider c70bp and $TRY up c16%. The YTD moves are quite impressive: c270bp on the 5y CDS and c70% on $TRY. Today’s selloff was amplified by low liquidity and occurred in three steps, before reverting partly towards the end of the session. Firstly, overnight, the FT reported that the ECB was concerned over some Eurozone banks exposed to Turkey (namely UniCredit, BBVA and BNP), given the recent plunge in the lira. Secondly, Erdogan gave a hawkish speech, calling people to convert USD/XAU back into TRY. Thirdly, Trump authorized steel & aluminium tariffs to be doubled for Turkey. Beyond Turkey, this sparked a risk-off sentiment throughout the session and across markets. EM was logically hit the hardest (CDXEM +16), but European risky assets also repriced (Main +3.8 XO +10 SX5E -2%), with financials underperforming (SnrFin +6.2 SX7E -3.2%). The US market was surprisingly resilient, before leaning more risk-off (SPX -0.8% CDX IG +2.8) after the European close.

Not Big Enough To Not Fail?

09 August 2018 by jbchevrel

Rite Aid (RAD) CDS is wider by c6pp this week, now at the YTD wide, just below 1,000bp. This week, the company lowered its earning guidance (on Aug 6) and the shareholders rejected a merger with ABS (on Aug 8), after ABS refused to raise their bid. Leverage (Tot Debt/EBITDA) now looks settled north 5x in the near future, since RAD has cut its F19 EBITDA guidance from $615-675M to $540-590M. The next bond maturity is not too close (Apr 23s), but the outlook for RAD does not look bright either. Mainly because RAD is subscale (compared to its peers CVS Health and WBA) in a competitive retail pharmacy industry where scale is crucial from a CoGS standpoint. The sale of 1,932 stores to WBA was good news in the short term, as it improved RAD’s stability, but longer term that makes RAD less competitive. Now that the merger with ABS is also off the table, years ahead look challenging for profitability.

Cold War Headlines Unfreeze Russia CDS

08 August 2018 by jbchevrel

Russian markets were under pressure today, on speculation that the US may tighten its sanctions towards Russia on election meddling. Russian media published today the full text of a sanctions bill prepared by some US senators, last week. The two main measures are a ban for purchasing new OFZ issues and the suspension of USD accounts for Russian state banks. Beyond this, that confirms that many Republicans disapprove Trump’s soft approach towards Russia. 5y CDS is wider +9bp today, $RUB is up c2.5% and OFZs are wider 20-25bp in the belly of the curve (2-5y). The US House is back from summer recess in September, so no action should be taken by then, which does not mean the market can’t price in more Russian risk premium in the meantime.