Credit-default swaps spreads on Deutsche Telekom, France Telecom and KPN came in last week because fixed-income investors feared Deutsche Telekom would cancel its pending bond offering. The investors put their cash to work instead by purchasing telco outstanding debt, said traders in London. As rumors that Deutsche Telekom would cancel its EUR5-8 billion (USD4.5-7.2 million) pending offering spread through the market, five-year protection tightened to 200 basis points/215bps from 230bps/240bps on Tuesday into early Wednesday. France Telecom tightened to 350bps/370bps from 380bps/400bps, while spreads on KPN tightened to 240bps/260bps from 268bps/285bps in that same time frame. Traders said volume was in the USD100-200 million range, and was weak in general last week because of the U.K. and European holidays.
As of Thursday, there was still uncertainty as to whether Deutsche Telekom would bring the bond deal to market this week as planned. A banker involved in the transaction told investors publicly last week that market conditions are challenging and that Deutsche Telekom would finish the marketing of the deal, but would not go ahead with the offering if the market is not there.
In addition to the impact of rumors on the market, there were some sales of credit protection as investors thought spreads were overblown in the sector. John Pearce, senior investment-grade telecoms analyst at Dresdner Kleinwort Wasserstein in London, said the European telecom market has been volatile, but the investors understand the fundamentals of the market well. "We've spoken to a number of investors and they've said there is not a lot of sense [in bond spreads] being this wide, so some are looking at this as a buying opportunity."
