Commodity names widened on Thursday as high-beta credits gave back some of their gains from recent weeks, but one name that bucked the trend was Xstrata.

The UK-listed miner was the strongest performer in Europe today, tightening by 19bps to 105bps, though its robust showing wasn't exactly an endorsement of its credit fundamentals.

Xstrata was acquired by Glencore last week, and the new combined holding company, Glencore Xstrata, started trading on the stock market on Friday. That doesn't mean Xstrata stops trading in the CDS market, however, and it is the new capital structure that explains the spread widening today.

The company announced that Xstrata Plc will no longer be a guarantor of debt issued by the group. The only cross guarantees will be given by Glencore Xstrata Plc, Glencore International AG (a CDS entity) and Xstrata (Schweiz) AG (not a CDS entity).

This simplifies the capital structure, but has the effect of potentially creating complications in the CDS market. New debt issued by the group may not be deliverable into a CDS contract referencing Xstrata Plc - Glencore International AG now looks to be the preferred entity.

This raises the prospect of Xstrata becoming an 'orphaned' CDS entity, meaning that there are no applicable deliverables. Spreads typically tighten when this situation arises, as happened to Xstrata today.

But there is outstanding debt that is deliverable, so it may not be orphaned just yet. This may change in the long-run, and the fact that it is no longer a guarantor could push liquidity away from Xstrata towards Glencore.

The basis between the two entities is now around 70bps (Glencore widened 13bps to 175bps today), the widest since November 2012. Deliverability differences will probably ensure that the two entities don't fully converge in the future.

In the broader market, credit continued to retrace slightly from the tight levels reached last week. The Markit iTraxx Europe was 1bp wider at 92.75bps, with peripheral names and banks leading the way. As expected, the Bank of England didn't change policy at its monthly meeting today, though the Bank of Korea became the latest central bank to cut interest rates earlier in the day.

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