Barcap touts fallen angel negative basis trades

In its most recent European Credit Alpha research piece, Barclays Capital argues that there are negative basis opportunities in fallen angel names. Short duration bonds issued by these companies make sense in the current low rate environment, says the report, and the near term default risk is low, for bonds trading at or above par.

For example, investors can buy Heidelberg Cement 7.625% 2012 bonds at 103.75% of par and buy credit default swap protection for 230 basis points. Another example is ITV’s 10% 2014 bonds, which trade well above par at 113. Credit default swap spreads on the UK media name are 245bp.