The trade that has kept on giving ever since it was first presented here in March 2014 as the best way to bet on the Chinese and Commodity collapse, and which has taken place just as predicted, continues to give. As a reminder, nearly two years ago we said to buy GLEN CDS (at 180bps) on expectations of a collapse in the price of copper - the one commodity whose fate is most closely tied to that of China, and to which Glencore had the biggest exposure.
Sure enough, China suffered a hard(ish) landing, copper plunged to decade lows, and Glencore CDS exploded to levels not seen since the financial crisis, prompting management to aggressively promise it will deleverage and cut back on money-losing excess production.
The plan worked, for a few months.
As of today, with Glencore stock once again trading near all time lows sliding as low at 75p, the company's default risk just hit 54%, the highest in 6 years, as a result of its CDS blowing out past 900 and wider than the intraday spreads hit in September as the following chart from Markit shows.
Why is this important? Because recall that the collapse of Glencore was one of the catalysts for the August/September market swoon; it was never fixed but because it stopped bleeding wider, the "experts" thought it was contained. Alas, it isn't, and now the market is about to have a rude second wake up call that the world's most important commodities trader - which may be downgraded to junk any minute - is also facing an all too real probability of bankruptcy unless commodity prices somehow surge in the coming months.