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CIR S.P.A. (CIR) – Orphaning fears

08 January 2014 by HCM

In a filing made a few days ago, CIRIM (Compagnie Industriali Riunite) announced that they could redeem the outstanding bonds maturing in 2024 which they issued back in 2004. It currently represents the bulk of the company’s traded debt, and if it is called there will be almost no deliverable left for credit default swap contracts. So when the news hit the tape, bids for protection were pulled aggressively and the 5y tightened accordingly. The 5y CDS spread gapped again yesterday when this information was given more air time by a dealer. This shows one of the issues you might face if you buy protection.
It is only one of the credit positive news that recently emerged (together with some IPO announcements and some decent results in December) and triggered some short risk covering in the Xover space. That explains the stubbornly positive basis we have seen in the Xover index.