The WSJ recently highlighted an occurrence that has been in place in different locales including the United States for quite a while now: market perceptions of credit risk that appear to be somewhat out-of-line with that of their home countries. McDonald’s restaurants, for example, has long traded lower than American sovereign CDS (the other example from a year ago, Hewlett-Packard, maybe not so much anymore). Their latest example demonstrates how the sovereign credit risk of France is currently priced higher than that of French and other European corporations, specifically those in the iTraxx Euro index.
Other intra-country examples given include France Telecom or French utility EDF trading lower than French sovereign CDS, and Unilever trading lower than the sovereign debt of its dual-country headquarters in the UK and Netherlands.
They point out that the phenomenon is more common between credit default swaps than it is between the equivalent corporate cash bonds although in still some exceptions such as “Italian oil-and-gas company ENI’s 2019 euro bond, for instance, yields around 0.6 percentage point less than a comparable Italian government bond.”
