The last few days have seen JCPenney's saga take a decided turn for the worse - if that's possible. With the stock price EKG-ing on every utterance from a CNBC mouthpiece, a desperate hedge fund manager, or a board looking to remain relevant; it seems - as usual - that credit markets not only saw through the news but remained stoic in their cash-flow-discounting reality check. Critically, the last few days have seen the short-end of the JCP CDS curve surge and the term structure has inverted. At current levels, the credit market assigns a 13% probability that JCP will default by March 2014. Not good... It is extremely unusual (though not unprecedented) for a credit to 'recover' from an inversion such as this.
Short-dated JCP CDS has surged... - at around 5 points upfront, this implies (absent an aggressive Goldman senior lien) a default risk around 13% to March 2014
and the curve has inverted dramatically...
