Credit protection tightened across the board last week after equity markets stabilized and new issuance dried up. Traders said hedge funds were sitting on credit default swaps expecting the spreads to widen as poor company results continued. But after the equity markets stopped falling investors sold the swaps. On average credit default swaps have tightened between four and five basis points over the last two weeks but autos and telecoms tightened approximately 20bps. The new issue pipeline has run dry over the last couple of weeks, according to Bradley Bugg, telecom credit analyst at Dresdner Kleinwort Wasserstein in London. He attributes this to companies coming to the market early to avoid paying premiums after investors were flooded with paper.
One of the biggest movers was DaimlerChrysler, with pricing on five-year protection narrowing to 96 basis points on Thursday from 112bps the week before. Christophe Boulanger, autos credit analyst at Dresdner, said DaimlerChrysler's first quarter results, which were published last week, were better than expected. The auto manufacturer had forecast it would lose between EUR800 million-1 billion (USD900 million) but its adjusted loses were EUR600 million. Five-year protection on France Telecom tightened 20bps to 125bps on Thursday. Traders said DaimlerChrysler narrowed more than its auto competitors because it had widened further on concern over how the company would restructure earlier in the year. The typical notional size of the trades was USD10 million.
One London-based trader said credit default swap spreads will continue to tighten as more money moves into fixed income products. He added individual names may widen on expected debt issuance and bad news about the corporation.
Moody's Investors Service rates DaimlerChrysler and France Telecom A3 and Standard & Poor's rates the company A minus.
MID-MARKET LEVELS FOR FIVE-YEAR PROTECTION ON DAIMLERCHRYSLER
