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Japan CDS update

24 March 2020 by jbchevrel

Today was a short squeeze day in (Japan) CDS space. The short squeeze occurred mostly in iTraxx Japan s33, which came -23bp tighter from 176bp to 153bp. Intra-day yesterday, the iTraxx Japan s33 had reached 195bp. The itraxx roll flattened as well in the move tighter. It came flatter by -5bp from +23bp to +18bp. Today, there was also a decent price action in the high-beta single-name CDS, especially SOFTBK, where a lot of news came over the past few days. The main driver had nothing to do with Japan. The Fed’s announcements came yesterday after the Japan CDS market was closed. The spread of COVID-19 is having an impact on the economic activity of people in Japan. On feb 25, the government started calling on companies to ask staff showing symptoms such as fever to take time off at home and recommend that workers telework or stagger shifts. Number of companies have now introduced teleworking. The number of weekday visitors to areas within 1km of Shinjuku and Ikebukuro stations in Tokyo came down by -30% vs a month ago. As far as SOFTBK, the 5y CDS has peaked at 700 on March 19 before Japan was effectively rolled yesterday. Today it closed 492. It remains by a tad, the widest name in the itraxx, just ahead of KAWKIS (480). SOFTBK (SoftBank Group Corp.) was reported to plan to sell $14B (range of $12-15B was mentioned) of shares in BABA, as part of an effort to raise $41B total through asset sales. They plan to raise the remainder by selling a stake in SoftBank Corp. (domestic telecommunications arm) and a stake in S (Sprint Corp) following its merger with TMUS (T-Mobile US Inc.). Beyond the asset sale, the FT today reported that SOFTBK was holding talks about going private with Elliott and Mubadala. S&P who rates SOFTBK BB+n, acknowledged the asset sale positively. The stock was +19% today. Cash soared too, with perp +12, seniors +2/+7. High beta Japanese shipping and steel CDS were also hit by short-covering and closed inside where we were pre-roll. Today KAWKIS closed 480 (-10), MITSOL 295 (-45), NIPYU 250 (-40), KOBSTL 300 (-30). Contrasting with this picture, activity in Japan shrank sharply in March, adding to domestic and global recession fears as the impact of the coronavirus slams supply chains, shutters factories and keeps shoppers and tourists at home. The preliminary PMI slid sharply to a record low of 32.7. The au Jibun Bank Japan purchasing managers index for manufacturing also fell to 44.8 in March, indicating the strongest contraction in the factory sector since April 2009. PMI readings below 50 signal activity is contracting.