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They Did It Again

05 January 2017 by lberuti

Towards the end of the year, credit derivatives are no exception to financial markets and liquidity is usually drying up. Volumes tend to become fairly thin, especially between Christmas and New Year’s Eve. That is unless some dramatic piece of news reaches the market of course. The announcement of a potential 500Bln Yen ($4.3Bln) write-down instead of an initial estimate of $87mln definitely qualifies. When news hit the wire that TOSH ( Toshiba Corp ) could suffer such a hit after the company admitted it had overvalued CB&I Stone & Webster, a newly acquired US nuclear unit, investors rushed for the exit and sent its stock 42% lower and its 5-year risk premium 358bps wider, from 86bps to 444bps, in volumes last seen when accounting issues surfaced at the company 18 months ago. Since then, TOSH managed to stop the rot when they announced banks were ready to offer them financial support, under the condition that it draws up business improvement plans. Meanwhile, the broader credit market took a breather today, and consolidated its stellar start to the year with indices closing a tad wider across the board.