The cost of default protection on Telecom Italia fell on Monday after AT&T and America Movil entered talks to buy stakes in holding company Olimpia, traders in London said.
Five-year default swaps on Telecom Italia tightened 4 basis points to 44 basis points before rising slightly after weaker-than-expected US manufacturing data. The contract traded at a 44.5 basis point mid-price late on Monday.
"Telecom Italia has been the biggest mover in a very quiet market," one trader said. "It feels like it's not a done story, and the market is waiting for more information about the bid."
AT&T and America Movil have offered about 4.5 billion euros ($6.01 billion), according to Reuters calculations, for a third each of Olimpia, Telecom Italia's top shareholder, with an 18 percent stake.
Telecom Italia shares rose more than 11.5 percent, the biggest daily price increase in almost eight years. The wider telecoms sector was little changed, the trader said, amid thin volumes. Five-year default swaps on Deutsche Telekom held steady, bid at 25 basis points, according to HSBC pricing.
The benchmark iTraxx Crossover index, made up of 50 mostly sub-investment grade rated credits, was 1.5 basis points wider at 231 basis points. "We are a bit weaker after the US data," a second trader said.
US factory activity grew in March but at a slower rate than in February, with a jump in prices paid but contraction in employment, according to a survey published on Monday. The Institute for Supply Management said its index of national factory activity eased to 50.9 from 52.3 in February.
Economists' median forecast was for a slight easing to 51.1. A reading above 50 indicates growth. The prices paid index, which measures inflationary pressures in the sector, climbed to 65.5 in March from 59.0 in February.
Elsewhere, the cost of default protection on Alliance Boots was little changed after people familiar with the matter said Celesio, the German owner of the Lloyds pharmacy chain, is exploring a possible offer to buy the firm.
Celesio is working with financial adviser NM Rothschild to sound out private equity firms to trump a 10-billion-pound ($19.7 billion) approach by Alliance Boots deputy chairman Stefano Pessina and private equity firm Kohlberg Kravis Roberts, the sources said. Five-year protection was trading at a mid-price of 73.5 basis points, a trader in London said.
In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 46.8 basis points more than similarly dated government bonds. In the primary market, French sugar producer Tereos, Swedish refinery Preem and US drug manufacturer Pharmaceutical Technologies & Services are marketing deals.
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