Barcap recommends basis trades, front-end protection

Barcap reported today that, as a result of cash underperforming CDS in credit, basis trades are attractive. In a benign basis trade, Barcap recommends buying bonds and CDS on telecom and cable names, which are relatively stable. For bearish basis trades, Barcap recommends buying distressed, below-par names and CDS protection aginst them on a par notional basis. Substantial benefits can be earned should the name default.

Furthermore, given recent flattening/inversion trends of single-name curves, Barcap recommends sellng front-end protection on stable names unlikely to default, such as telecom and cable. Barcap analysts foresee loans to become attractive post-unwindings, especially with spread implying more than 1,300 basis points over.

Finally, investors should wait on LevX, as it has more unwinding upcoming. There is also strong relative value to be captured in loan versus high yield trades.