Japanese swap spreads range-bound in limited activity

Japanese credit default swaps remained directionless this week, with spreads moving up and down within a narrow range, in what was an overall quiet trading week, dealers said.

“There are no big buyers or sellers of protection now in Japan,” said one trader.

Most of the focus remained on the electronics sector, with Japanese computer makers suffering from weaker US stocks. The convertible bonds issued by those companies, namely Fujitsu and NEC, became cheaper, offering some relative-value trades. said another trader.

The cost of five-year credit protection on electronics company Fujitsu was quoted at 200 basis points on Friday, after tightening to 180bp last week from 215bp the week before. NEC’s credit default swaps were quoted at 186bp, back at their levels a fortnight ago, after tightening by 30bp last week.

Bank spreads were also slightly wider, mostly caused by profit taking, traders said, with Bank of Tokyo-Mitsubishi credit default swaps widening to 85bp from 80bp.

The market appears to be stabilising at current levels, although spreads could widen going forward if the global credit environment deteriotates, noted one of the traders, adding that Brazil’s feared credit crunch could also have a negative impact on global credits.