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Mind The Gap

06 January 2017 by lberuti

Early in the week, NXT’s ( Next Plc ) trading update put pressure on all UK retailers. Yesterday was another tough session for the sector, in the US this time around. KSS ( Kohl’s Corporation ), LTD ( L Brands Inc ), M ( Macy’s Inc ) all announced disappointing holiday sales and store closures, souring market sentiment. As investors extrapolated to all retailers, GPS’s ( Gap Inc ) 5-year risk premium was clobbered during the afternoon and reached 340bps. After the market, when the company released better than expected numbers helped by a focus on product and value which lured shoppers to its stores, everyone was taken by surprise and people rushed to cover short risk positions, making it the best performing credit in the High Yield universe. Today, GPS’s 5-year CDS closed 31bps tighter at 299bps. Meanwhile, the broader credit market recovered in the afternoon from a weak start early on, and credit indices closed unchanged across the board.