CDS pricing

Credit asks whether risk is appropriately priced in the CDS market and whether pricing anomalies, such as that caused by the recent Sainsbury's refinancing, are putting investors off

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ASHISH SHAH, CO-HEAD OF CREDIT STRATEGY, LEHMAN BROTHERS, NEW YORK

When firms engage in transactions that lead to succession events or refinancing debt outside of the corporate market, the uncertainty surrounding such cases can cause sharp increases in the volatility of the appropriate CDS contracts. Despite this, CDS risk premium spreads have actually decreased significantly.

The tightening is a result of technical market pressures, including an increase in issuance of synthetic CDOs. On the

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