Japan credit market update: technology sector spreads hit by Nasdaq slump

Credit default swap spreads on Japanese technology names were wider this week, in part due to the decline in the technology-heavy Nasdaq equity market in the US but also due to a technical correction caused by range-bound trading, dealers said.

They said while the overall trend is still towards spreads on credit default protection tightening, spreads on some names - such as Toshiba, Sony and NEC - were wider.

Five-year protection costs on Toshiba debt was quoted at 90 basis points (bp) on the bid side early Friday, compared with 85bp last week. NEC’s credit default swap widened by 20bp on the week, trading Friday at around 150bp. Sony was slightly wider this week, at 29bp compared with 28bp last week.

A weak stock market is "bad news" for the credit default swaps market, said one trader. With the Nasdaq dropping to its lowest level since the start of the year - and dragging the Nikkei with it - protection on Japanese electronic names is becoming more expensive, said the trader.

The Nasdaq finished Thursday’s trading session in New York 2.14% lower, at 1464.74. Reflecting the negative sentiment on stock markets, the Nikkei dropped by 2.3% to 10,372.07 in mid-session Friday in Tokyo.

But traders noted that most participants in Japan are still adopting a wait-and-see stance, with few taking any drastic positions ahead of the weekend.