Five-year credit default swap spreads on Australian telecom company Telstra Corp. tightened last week, partly on the back of a positive change in sentiment among equity analysts, said traders in Sydney. Five-year credit default swaps on Telstra traded twice Monday at 67 basis points and 68bps, compared with Jan. 19, when it traded at 73bps, traders said. Telstra's capital expenditure seems to have bottomed out recently, according to analysts' reports, helping its stock rally to AUD7.12 (USD3.93) last week from a low of around AUD6 in August, one trader noted.
Robert Hook, an equity analyst at National Australia Bank in Melbourne, said Telstra's share price was fairly healthy last month. Sentiment has improved partly because the amount it is due to pay in its strategic alliance with Pacific Century CyberWorks was revised and effectively reduced in December, he said. Telecom company stock values have recently improved globally though, he added. Telstra's next earnings report is in early March.
Five-year credit default swaps on Telstra were trading at around 40-50 basis points in September and October, shortly after its stock plunged to around AUD6 per share, a trader said. Pricing on the credit then increased steadily and came close to touching 75bps by year-end, he added.
More offers for protection than bids have appeared in recent weeks, as investors are becoming more comfortable with the credit, traders said.
Pierre Katerdjian, global credit swap trader at Deutsche Bank in Sydney, argued though that while a credit's share price is often a factor in the pricing of protection on it, a general improvement this year in sentiment toward telecom companies globally had driven the drop in protection prices on Telstra.
