“A market has yet to materialize for credit default swaps offering protection on Apple Inc’s record US$17 billion bond issue, despite the enormous size of the deal,” Melissa Mott reports for International Financing Review.
“While quotes are available and prices have been published by data vendors since May 1, activity has been negligible, with only a handful of investors attempting to make a market in the five-year maturity,” Mott reports. “‘I would think CDS will start trading at some point, but this is one of these situations where it’s such a cash-rich institution that having CDS on it is less valuable,’ said William Larkin, portfolio manager at Cabot Money Management. ‘CDS is something you buy if you think the credit will deteriorate. Apple really doesn’t need CDS.'”
Mott reports, “Others said the absence of volatility in secondary market trade has reduced hedging demand and made the bonds a less aggressive play for fast money. Credit default swaps offer protection against a potential default and are also used to speculate on creditworthiness. ‘From the sell-side perspective, there is not a lot of interest to hedge out risk exposure on this type of name, especially since it’s easier and cheaper to short with Treasuries,’ said a market source.”
Read more in the full article here.
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