Cost Of Insuring Against Default By Japanese Co.s Declining

The cost of insuring against default by Japanese companies is gradually declining, particularly among companies with higher levels of creditworthiness.

Concerns about the European debt crisis have abated, helping to bring conditions in the credit default swap market back to normal.

CDS premiums for Nippon Telegraph and Telephone Corp. (TSE:9432) and East Japan Railway Co. (TSE:9020) were recently at around 0.4 per cent to 0.5 per cent, down about 20 basis points from a peak in early October.

Telecommunications giant NTT and railway concern JR East generate stable earnings, given the public nature of the services they provide. While the possibility that global financial woes might prevent both companies from paying back debt was minimal, their CDS spreads nonetheless reflected an overall downturn in market sentiment.

Toyota Motor Corp.'s (7203) rate is now at roughly the same level as at the end of July, which was before the U.S. debt downgrade, sliding from nearly 1.2 per cent in October.

The European Central Bank's efforts to increase funding provisions, together with other steps, have helped underpin conditions in the region.

When credit risk concerns subside, companies with higher creditworthiness "tend to be the ones that first show a decline in premiums," says Mana Nakazora, chief credit analyst at BNP Paribas Securities (Japan) Ltd.

But CDS premiums for electronics giants remain high in reflection of their eroding earnings.