Fitch Solutions, a division of the Fitch Group, says CDS on consumer services companies continues to trade with more liquidity than the broader market, given ongoing market uncertainty on the growth prospects for the global economy and the knock on effect for consumer demand levels.
The outlook for the consumer services sector is inherently linked to the health of global economy, which is being reflected in the CDS liquidity of general retailers, media, travel and leisure companies
Companies from this sector make up 20% of the top 500 most liquid names globally but represent just 12.6% of Fitch Solutions’ global liquidity score universe. All other sectors make up a similar, but smaller proportion of the remaining names.
“The outlook for the consumer services sector is inherently linked to the health of global economy, which is being reflected in the CDS liquidity of general retailers, media, travel and leisure companies,” says Jonathan Di Giambattista, Managing Director, Fitch Solutions, New York.
“Many consumer services firms, and several US retailers in particular, made heavy use of debt financings throughout the middle of this decade and therefore CDS liquidity is also likely driven by market speculation over how upcoming refinancing activity will play-out in the face of tentative economic improvement,” Di Giambattista added.
More generally, CDS liquidity across all regions continues to reflect a high level of uncertainty as markets await details surrounding the European Union’s plans for a Greece bailout.
The full Fitch Solutions’ Global CDS liquidity scores commentary, which covers the top five most liquid CDS corporate names in Europe, North America and Asia, as well as the top five most liquid global sovereigns, is available on the agency’s website: www.fitchratings.com under – “Fitch Solutions’ Global Liquidity Scores Commentary Issue 28”
In general, the liquidity of a credit derivative asset increases when it is showing signs of financial stress in combination with a significant amount of debt outstanding and/or changes in its capital structure, including new issuance. The liquidity scores of assets have historically traded between 4 at the most liquid end, through to 29 at the least liquid end. Entities also tend to be more liquid when there is agreement about present value but disagreement about future value due to heightened uncertainty surrounding the entity.
D.C.