KYNEX Flash Bulletin                                  

12 September 2012

 

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US$ Curve from EuroDollar Futures

US$ Swap (EDF)

 

We will be redefining the “US$ Swap” curve in Kynex effective September 17th 2012.  The US$ Swap curve will use the curve constructed using Euro-Dollar future contracts.  In your Custom Defaults (or in your portfolio assumptions if applicable) this change will be made automatically.  The US$ Swap (BBA) will be available to you as a separate choice.  If you would like more detail about why the BBA constructed curve is being replaced, please see the June 27, 2012 Flash Bulletin.  Please note that since the June Flash Bulletin we have modified the curve slightly so that the ending tenors (15, 20, and 30 year) use the swap rates rather than the projected forwards from the EDF contracts.


The most noticeable differences will be for securities that have an expected life of approximately one year.  The valuation will be affected due to the premium associated with the Libor Rates.  The premiums are currently most exaggerated at the six month and one year tenors.

 

You will observe changes in Fair Value for out-of-the-money convertibles that are trading to a put/maturity of approximately one year from today.  These convertibles are trading on investment value and the discounted cash flows will be affected by the changes to the curve.  Convertibles expected to exhibit meaningful differences in Fair Value, Implied Spread and Implied Volatility due to the change in the curve are presented in the table below.

 

Corporate bonds and Preferred securities valued with the US$ Swap Curve will also present differences in spreads when the worst date is approximately one year from today.  You may also notice slight changes in DV01/Rho for corporates/convertibles.  Options and Warrants that expire in approximately one year will also exhibit differences in implied volatility.  The curve changes will have an impact on the valuation of interest rate swaps as well, especially when the maturity is one year away.  We believe the changes will bring the curve used for interest rate swaps in line with the internal curves developed by most broker-dealers. Credit Default Swaps will not show meaningful differences due to the change in the curve.

 

 

Disclaimer

 

 

Top 40 Fair Value and Implied Spread/Vol Differences

Ticker

Issuer

Coupon %

Maturity

Sec Type

 Outstanding ($mm)

1402 TT

Asia Cement Corp/Far Eastern New Century

0

27-Jan-16

Disc

                           375

2317 TT

Hon Hai Precision Industry

0

12-Oct-13

Bond

                        1,000

2353 TT

Acer Inc Tranche A

0

10-Aug-15

Disc

                           300

2371 TT

Tatung Co

0

25-Mar-14

Bond

                           150

2448 TT

Epistar Corp

0

27-Jan-16

Bond

                           273

3368 HK

Parkson Retail Group

0

12-Mar-13

Disc

                           299

ADM

Archer Daniels Midland

0.875

15-Feb-14

Bond

                        1,150

AIR

AAR Corp

1.75

1-Feb-26

Bond

                           108

AOBI

American Oriental Bio

5

15-Jul-15

Bond

                           115

AOIL SS

Alliance Oil Company

7.25

16-Jul-14

Bond

                           265

ATI

Allegheny Technologies Inc

4.25

1-Jun-14

Bond

                           403

BGC

General Cable Corp

0.875

15-Nov-13

Bond

                           355

CDNS

Cadence Design Systems Tranche 2

1.5

15-Dec-13

Bond

                           144

CMEDY

China Medical Tech

4

15-Aug-13

Bond

                           247

CRL

Charles River Labs

2.25

15-Jun-13

Bond

                           350

ENZN

Enzon Inc

4

1-Jun-13

Bond

                           130

EXH

Hanover Compressor

4.75

15-Jan-14

Bond

                           144

FCE.A

Forest City Enterprises (Exchange Offer)

3.625

15-Oct-14

Bond

                           200

HOLX

Hologic Inc

2

15-Dec-37

Bond

                           775

IEP

American Real Estate Partners

4

15-Aug-13

Bond

                           600

IPG

Interpublic Group (Exchangeable)

4.75

15-Mar-23

Bond

                           200

JDSU

JDS Uniphase Corp

1

15-May-26

Bond

                           293

LPNT

Lifepoint Hospitals Inc

3.5

15-May-14

Bond

                           575

MDT

Medtronic Inc Tranche 2

1.625

15-Apr-13

Bond

                        2,200

MNKD

Mannkind Corp

3.75

15-Dec-13

Bond

                           115

NAFC

Nash Finch Co

1.631375

15-Mar-35

Bond

                           322

NOBL SP

Noble Group Limited

0

13-Jun-14

Disc

                           250

ONNN

On Semiconductor Corp

2.625

15-Dec-26

Bond

                           232

ONXX

Onyx Pharmaceuticals Inc

4

15-Aug-16

Bond

                           230

ORB

Orbital Sciences

2.4375

15-Jan-27

Bond

                           144

PLD

Prologis Trust

2.625

15-May-38

Bond

                           364

PMG CN

Petrominerales Ltd

2.625

25-Aug-16

Bond

                           272

PMO LN

Premier Oil Plc

2.875

27-Jun-14

Bond

                           250

RSH

RadioShack

2.5

1-Aug-13

Bond

                           375

SNDK

SanDisk Corp

1

15-May-13

Bond

                           928

SPWR

Sunpower Corp

4.75

15-Apr-14

Bond

                           230

SYMC

Symantec Corp. Tranche B

1

15-Jun-13

Bond

                        1,000

TAP

Molson Coors Brewing Co

2.5

30-Jul-13

Bond

                           575

TRE CN

Sino Forest Corp

5

1-Aug-13

Bond

                           345

TSL

Trina Solar Limited

4

15-Jul-13

Bond

                           138