Credit default swap spreads on troubled telecommunications and electronics outfit Marconi doubled last week and offers dried up as trading in the company's shares was suspended. Traders said the price of five-year protection widened from 150 basis points/170 bps Wednesday to trade at 350bps on Thursday. It nudged back to 280bps/330bps Friday. Standard & Poor's and Moody's Investors Service put Marconi on credit watch Thursday following a string of bad news from the company, including a disappointing price it generated in the sale of Koninklijke Philips Electronics. S&P rates the company triple-B plus and Moody's rates it A3.
Pricing on credit default swaps for similar companies, including Ericsson and Alcatel, also blew out last week. Traders said the exception was Siemens, which stayed around 32bps/48bps because it is a more diverse company, and the market expects it will be insulated to the downturn in demand for telecommunication equipment. Traders took advantage of the widening of spreads on telecom equipment manufacturers against telecommunication companies by selling protection on the manufacturers and buying protection on the telecom companies, according to a trader. British Telecommunications was trading in the mid 70bps last week, while Marconi was in the 300bps range. If this spread narrows the traders win.
