Credit-default swap spreads on Deutsche Telekom tightened last week for five-year protection because of rumors that pricing on the telecom operator's approximate USD5 billion deal was going well. Swaps spreads tightened to 228 basis points/233bps from 230bps/240bps on Tuesday, in from 245bps/250bps the previous week, traders said. Swap spreads were in line with price talk on the bonds--rumored to be at 230bps over LIBOR.
Volume was high Tuesday afternoon, as USD150 million in trades went through, traders said. Typical volume is around USD30-50 million a day. Hedge funds were big sellers of protection as they covered their short positions on Deutsche Telekom bonds, the traders added.
Julia Campbell, senior analyst at HSBC, said the tightening trend for pricing on the deal was derailed on Thursday, however, as Moody's Investors Service changed its outlook on the credit from stable to negative. Deutsche Telekom is rated Baa1 by Moody's and BBB plus by Standard & Poor's, with a stable outlook. It was anticipated the deal would be priced Thursday, but after the rating change, the timing is less certain, she said. It is likely the deal will be priced closer to original price talk, which was 260bps over LIBOR for the five-year paper and 280-290bps for the 10-year bonds.
