Roll-Royce CDS blow out on hedge failure

摘要

The cost of credit default protection on Rolls-Royce has traded as much as 50% wider over recent sessions, as banks rushed to hedge EX forwards deeply in the money against the UK aero-engine maker. Five-year credit default swaps on Rolls-Royce traded as wide as 177bp, compared with a tight print of 108bp in mid-June, as banks bought protection on FX hedges taken out by Rolls-Royce to cover itself against declines in the US dollar, in which it makes a large share of its sales. Late on Thursday the CDS were trading at 145bp.