Bonds: Telefonica shrugs off rating pressure

Telecoms were in focus in the European corporate bond market on Monday as Telefonica saw its credit ratings come under pressure due to its Latin American aspirations, although traders said there was little reaction.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 60.6 basis points more than similarly dated government bonds at 1627 GMT, 0.3 basis points less on the day.
Standard & Poor's said it might cut Telefonica's A rating after the company announced it would pay $5.85 billion for BellSouth Corp's Latin American cellular assets, although the market was largely unmoved by the decision.
"Spreads are unchanged," said one trader. "Telefonica widened three or so basis points on the announcement of the deal. By this time people had already made up their mind about what should happen with the rating."
Another trader concurred, saying the move came last week as Telefonica bonds lagged the market.
"We have seen a move over the last few weeks as single-A names have under-performed triple-Bs. That makes sense as they're the ones looking at acquisitions," he said. By 1530 GMT, Telefonica's 5.875 percent euro bond due February 2033 was bid at 95 basis points over government bonds, a trader said.
Elsewhere, industrials, utilities and auto bonds were also largely unchanged, traders said, with little to report in the way of trading flows. Even St Gobain bonds were unmoved by news the company had paid 686 million euros for Dahl International AB, a Scandinavian sanitary, heating and plumbing firm, including 322 million euros in transferred debt.
British retailer Marks & Spencer brought some much needed life to the sterling corporate bond market as it sold a 400-million-pound 10-year deal that priced to give a spread of 93 basis points over Gilts, at the tight end of initial expectations. M&S will use the proceeds of the sale to fund its British pension scheme.
And Australia's Amcor, the world's largest plastic bottle maker, on Monday sold a 350 million euro bond due March 2011, its first in the European currency.
While the investment-grade corporate bond market remains quiet despite the brace of deals on Monday, borrowers are lining up lower down the credit curve to take advantage of the hunger for yield among investors.