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Go long sovereign versus corporate credit risk, recommends Barcap
Barclays Capital researchers argue in their most recent European Credit Alpha report that some European corporates trade too tight relative to their respective sovereign, with many trading inside the sovereign. The report says that the current ratio between iTraxx main and SovX of 1.2 is unsustainable. (SovX, at 67.75 basis points, is only 12.75bp tigher than the European investment grade index.)
While it is true, write the analysts, that the volume of sovereign debt dwarfs that of any corporate, sovereign spreads should still provide a floor for corporate credit spreads given governments' taxation powers and access to multilateral lenders such as the IMF.
As a trade idea, Barclays suggest buying protection on either Experian (which has credit default swaps trading at 38bp) or Compass (46bp) and selling protection on the UK (at 78bp). Experian, the report points out, derives 25% of its revenue from the UK, while for Compass the figure is 20%.
Another version of the same idea is to buy protection on TeliaSonera at 46bp while selling protection on Sweden (52bp), which owns 40% of the telecoms company.
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Come on bankster - Buy Protection on Sovereigns? Sure, theoretically it's a home run. If not 2010, then 2011-12. However, since the counterparties are all going bust when the global monetary system collapses, there won't be any way to collect. The casino has shut down. Have fun out there losing you shirt over the next few years! They'll all see you in hell.
well the 3rd largest sorry
I for Ingland?
well the 3rd largest sorry
About Pigs and constituents, when you include Italy think about Italy has the largest Gold reserve pro-capite in the world. I'm sure at some point that will make a difference. Probably time to put Ireland as "I"?
Come on Anonymous - if you are so sure that developed sovereign countries default in 2010, why don't you buy protection on them? Think about it, you spend no mroe than 1.5% to buy protection on a country like Greece, and you get something like 70-80% when Greece default, a no-brainer right?? If you want to spend less, go for one of the other P.I.G.S.. (Portgual, Italy, Spain)
Come on everybody- This is all about Barcap getting rid of its sovereign exposure and going net short to rip your face off when developed sovereigns start defaulting in 2010. Don't be so stupid to believe anything the "independent" researchers in sheeps' clothing write here. Bahhhhh.