Credit-default spreads on European telecoms moved tighter last week, lead by France Telecom, as investors put New Year's cash to work in the liquid telecom sector. Five-year protection on France Telecom tightened roughly 10 basis points to 165-175bps by Thursday in London. Other European names such as British Telecommunications and Deutsche Telekom moved in about half that amount to 87-97bps and 93-103bps, respectively. Traders said the move in the default swap market mirrored the cash market, where investors put cash to work at the start of the new year before primary issuance has materialized. "Investors get flat toward the end of the year, so now they have cash to spend and nothing to spend it on," said one default swap trader, adding, "telecoms are the most liquid: you can get in and out."
Yet despite the spread tightening, the telecoms are not fundamentally better off than they were a week ago, according to Aidan Fisher, telecom analyst at Moody's Investors Service in London. Although France Telecom was able to refinance its debt significantly last year, "I don't think the fundamentals have changed" since the company's upgrade to Baa1 in September, Fisher said. Moody's has a stable outlook on the company. Standard and Poor's rates France Telecom BBB plus, with a negative outlook.
Five-Year Credit Protection On France Telecom
Source: J.P. Morgan