Home arrow Loan For Poor Creditarrow Credit And Equity Traders Differ After Moodys Cuts Japan Rating

Credit And Equity Traders Differ After Moodys Cuts Japan Rating
E-mail
Written by Richard E. Morris   
Thursday, 22 December 2011
Moody's downgraded Japan this week, bringing its rating in line with those from the other leading agencies by chopping the sovereign from Aa2 to Aa3. Credit traders saw that as an opportunity to sell CDS on Japanese companies, but equity investors largely ignored the move.

Moody's blamed political instability that has led to five different prime ministers in the last five years (with another on his way in), the economic consequences of the tsunami and earthquake that struck in March, weak growth prospects and the perils of deflation.

Moody's followed S&P, which cut the country's ratings to AA- in January. Credit and equity markets failed to react to that move, but investors were a lot more confident at the start of the year. Equity investors again appeared to largely ignore the downgrade -- but credit traders sold CDS and pushed the iTraxx Japan CDS index up by around 15bp on Wednesday to close at 160bp, according to a credit trader.

"The equity market has been rallying the last few days but that makes no sense to me at all," said a credit trader in Hong Kong. "Is there any good news around? If there is, I can't see it. We are largely staying out of the market, but we have taken a few directional plays on Japan CDS today."

The Nikkei 225 closed on Wednesday only 1.07% down, falling less than both Hong Kong's Hang Seng Index and Singapore's Straits Times Index on the day. The Japanese index then bounced 1.54% the following day, closing at 8.772.36.

The downgrade does not affect the country ceiling or deposit ceiling in Japan, which Moody's still has at Aaa. But it did affect the long term issuer ratings of several big Japanese banks. Among them, Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Banking Corp were cut to Aa3 from Aa2 -- and Mizuho Bank was cut from Aa3 to A1.

The downgrade also led to the ratings of 12 regional governments in Japan also being cut to Aa3.
Last Updated ( Thursday, 22 December 2011 )
FASTLoansForPoorCredit.com Design by RocketTheme © 2010 - 2011 All Rights Reserved