By Brett Foley
Oct. 27 (Bloomberg) -- The cost of protecting against a default by the world's largest commodity trader Glencore International AG has risen fivefold in two months as investors run ``scared'' from mining companies, said Jonathan Pitkanen, a credit analyst at Aviva Investors in London.
Glencore is the largest shareholder in Swiss copper and nickel producer Xstrata Plc, which has plunged 74 percent on the London Stock Exchange in the same period. Credit default swaps for Baar, Switzerland-based Glencore's five-year bonds climbed to 1,240 basis points, according to data compiled by Bloomberg.
The CHART OF THE DAY shows how Glencore's credit default swaps jumped while shares of Xstrata fell.
``It is all fear at the moment,'' Pitkanen said in an interview. ``People are scared and they are running scared from this sector. The market's reaction has been completely overcooked.''
Standard & Poor's on Oct. 14 cut its outlook for Glencore to stable from positive and affirmed its ``BBB'' rating. ``The movement in the spread doesn't seem to bear any resemblance to their credit fundamentals at the moment,'' Pitkanen said.
A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. The contracts rise as investor confidence deteriorates and fall as it improves.
To contact the reporter on this story: Brett Foley in London at bfoley8@bloomberg.net
Posts
No comments:
Post a Comment