OK, OK. Time to ‘fess up to my bad Glencore CDS call. Think I said below 1,000 basis points by Christmas. Well, after the first full day of the first proper week of the new year, it’s hovering at just above the 2,000bp mark.
For those who have not followed this, the Swiss-based super secret commodities trading and investment firm got hammered throughout October, November and December far more than any other name in the field and far more than anybody who knew the company thought warranted. The CDS peaked above 3,000bp and there were plenty of whispers, though little real evidence, of a kind of pressure trade that shorted Glencore credit and the shares of its biggest investment holding, Xstrata, with the idea that declines in each would feed into further declines in the other.
Below 1,000bp still looks some way off.
Still, the drop in Glencore’s CDS since the company made some unprecedented public statements about its liquidity position and a debt buy back plan and since the FT wrote about this pressure trade is pretty striking, suggesting the spread had got well out of hand. Watch this space…
