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Flow with the Fed: KBH CDS

14 January 2021 by jbchevrel

KB Home [KBH] engages in selling and building a variety of new homes. It builds various types of homes [attached, detached single-family homes, townhomes and condominiums]. It operates in 4 regions: West Coast, Southwest, Central and Southeast. It is headquartered in LA. The CDS of KBH is a constituent of the CDX HY index since series 12. This week was a good one for KBH longs, the company reported stronger-than-expected quarterly orders. This is as buyers rushed to take advantage of historically low mortgage rates in the US. The 5-year CDS of KBH has tightened close to 25bp in two days in the aftermath of the results, and the shares rose. For the three months through November, signed purchase contracts rose a steep +42% from a year earlier to 3,937 to be compared with a BBG consensus of analysts at 3,401. The order total was at the highest Q4 since 2005. The value of orders increased in all of the four regions covered, led by the Southeast [+69%]. KBH gross margin was 21%, a level the CEO said should sustain this year. The pandemic rally, driven by low mortgage rates, is lifting markets that were previously showing some weakness, including California, where KBH has a strong focus.