Credit-default protection on telecom companies tightened on Tuesday, grinding in even further Wednesday morning. The moves were sparked by the credits' improving equity performance and investors showed comfort that companies have begun to take needed write-downs from investments in third-generation licenses, said traders in London. In addition, Deutsche Telekom announced it was on track to report higher full-year earnings compared with last year, which tightened the price of its five-year protection to 270 basis points/280bps on Wednesday morning from 295bps/300bps on Monday, according to traders.
The demand squeezed dealers because their bond inventories are low, said traders. This prompted firms to hedge their positions by selling protection, pushing spreads tighter. Protection on KPN tightened to 265bps/275bps from 290bps/310bps Monday, while swap spreads on Telefonica came into 215bps/230bps from 225bps/250bps the previous week. In addition, swap spreads on Vodafone, BT Group and Telecom Italia all tightened by approximately 25bps, traders said.