Credit default swap spreads on five-year protection narrowed in the telecom sector last week after France Telecom came to market Wednesday with a USD16 billion bond. The five-year spread on France Telecom came in 10 basis points to 170bps and the same contract for British Telecommunications and Deutsche Telekom both moved in 15bps to trade at 155bps on Wednesday.
Anjan Malik, v.p. credit derivatives trader at Lehman Brothers in London, attributed the narrowing of spreads to France Telecom's bond being oversubscribed, showing strong demand for telecom paper. The bond offering was oversubscribed because the credit market in Europe is growing and investors are hungry to snap up highly-rated names. Investors have been nervous about the level of debt telecom companies hold, but when single-A rated non-telecom names, such as Bass, are quoted at only 37bps/43bps investors have to examine the risk/reward profile, he commented.
Standard & Poor's rates France Telecom and Deutsche Telekom single-A minus and British Telecommunications single-A.Moody's Investors Service rates BT and Deutsche Telekom A2 and France Telecom A3.
