Japanese default swap spreads tight despite bearish equity market

Convertible arbitrage funds and other investors seeking premium continued to maintain tight Japanese credit default swap spreads, despite continued weakness in the country's benchmark Nikkei 225 stock index, which dropped near its 19-year low of 8,303, closing today at 8,406.88.

“When Japanese [interest] rates are at zero, you’ve got to put your money somewhere,” said one Tokyo-based trader. In other words, investors seeking to offer credit protection to collect the premiums as a way to enhance their returns have helped keep Japanese credit default swap spreads tight.

The trader added that activity related to convertible bonds from arbitrage accounts lightening their books ahead of the year-end, was also helping credit default swap spreads brush off Japan's grim economic