Telecom Italia, the Italian telecommunications group, is in the spotlight in the credit derivatives markets this morning after AT&T and America Movil started negotiations to purchase a stake in TI’s holding company, Olimpia.
The cost of insuring the give-year debt of TI against default, using credit default swaps, fell by 4 basis points to trade at 43.3bp, midpoint, according to Deutsche Bank.
However, elsewhere the markets were relatively quiet, as traders took a breather after a turbulent period last month. The so-called iTraxx crossover index, which measures the cost of insuring against default on a basket of risky corporate bonds, was trading at 231.5bp for series seven of this index, little changed on Friday’s close.
Meanwhile the iTraxx index, which covers CDS of investment grade names, was trading around 24.5bp, also little changed.
The market in Japan was also quiet, traders said, with the iTraxx Japan series 7 trading around 22.75bp, little changed on Friday’s close.
However, the CDS of Takashimaya closed a little tighter, at around 14.5bp, while Softbank‘s CDS continued to attract high activity, although it closed the day unchanged at 265bp.
In the US, one notable trend that has caught traders’ attention in recent days is the behaviour of emerging market CDS spreads, with many of these tightening in recent days — irrespective of the unease besetting US markets.
“Emerging market spreads continued to prove their resilience in challenging conditions. US stock markets – which often lead emerging market spreads – were volatile on Friday amid geopolitical tensions,” said Markit. “Oil has consequently risen to over $66 a barrel. However, Ecuador and Venezuela are both oil exporters and have benefited from the commodity price rise.”
Ecuador closed on Friday at 721bp, 26bp down on the day, while Argentina closed at 205bp, 7bp tighter, and Venezuela closed at 161bp, 6bp better on the day.
Separately, traders continue to watch the CDS activity linked to the bulge bracket banks, following the eruption of concern about their exposure to sub-prime mortgage problems. GFI, the interdealer broker, yesterday said that its trading flow data shows “that CDS for the banking sector saw the most active trading in the US, led by Bear Stearns.”
It added: “Financial services remained in the most active category, led by Countrywide Home Loans, while the auto manufacturing sector rounded out the list. In Europe, telecom dominated for the sixth month in a row led by Telecom Italia and TeliaSonera AB. The food retail and wholesale sector maintained its position for the second straight month, while Valeo pushed the auto parts sector into the most active category.”