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Material Compression

22 August 2014 by HCM

The basic material sector is the widest sector in the European investment credit with Glencore (GLEINT) and Anglo American (AALN) trading in the 120bps context on the 5 year CDS. These names have a high beta versus the investment grade index. Today they are trading at the tightest level of the year while the index is closing 5bps off its tightest level @60bps. After a flurry of acquisitions after 2008, these companies are rationalizing their portfolios and they are less at risk of an economic downturn. The compression versus the other defensive names of the sector is significant but we could be close to the floor.