Japan credit default swaps seen at the end of tightening trend

Japanese credit default swaps have reached the end of their tightening trend, and market participants are now waiting for direction, dealers said. But with the fiscal year-end approaching, they predict that participants are likely to stay on the sidelines for another month.

Credit default swap spreads opened the week wider, on the back of North Korea’s test-fire missile launch as well as some negative domestic corporate news. The widening seen on Monday was very short-lived, one trader noted, and on a sector such as banks there was significant two-way activity that helped stabilise the cost of protection.

The successful sale of preference shares from Sumitomo Mitsui Financial Group and Mizuho also helped lift concern that the banks may be strapped for cash and