Bonds: Deutsche Telekom issue in focus

Deutsche Telekom was the focus of the European corporate bond market on Tuesday as it prepared a jumbo bond sale, with investment-grade spreads moving tighter as the sale approached. The high-yield market however was under pressure, with airline SAS seeing the cost of credit protection rise after it reported weak December passenger data.
Deutsche Telekom, Europe's biggest telecoms operator, is selling a two-tranche issue worth 3 billion to 4 billion euros ($3.94-$5.25 billion), its first major bond sale since 2002.
Price guidance for DT's new 5-year bond was for a yield of mid-swaps plus low-30s basis points, while the bond's 10-year tranche was seen pricing at low-50s basis points over swaps, a banking source said earlier.
Suki Mann, credit strategist at SG, said that the new DT deal offered no premium to existing bonds from the operator.
"They have first mover advantage," he said, pointing to the German operator being the first in its sector to sell a benchmark issue this year. "But it's very much a 'take it or leave it' deal for investors. They've said it will be the only deal (in euros) this year."
A trader said that the 10-year part of the bond was faring better than the 5-year in the grey market, where bonds are traded unofficially amongst dealers ahead of launch.
Existing bonds of Deutsche Telekom were unchanged on the day, with the company's 8.125 percent 2012 euro bond trading bid at 55 basis points over Bunds, another trader said.
He said the new deal was being priced too aggressively for him to be interested. "At mid-30s and mid-50s (basis points over swaps) I was interested, but at the low end, I'm not. On a short- to medium-term proprietary basis there's no juice in the deal," he said.
In the wider secondary market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 46.3 basis points more than similarly dated government bonds at 1633 GMT, 0.5 basis point less on the day.
One of Europe's top corporate borrowers, auto maker General Motors saw its 8.375 percent euro bond due July 2033 widen one basis point to 364 basis points over German Bunds in afternoon trade, a trader said.