The cost of default protection on European telecommunications firms edged lower on Tuesday amid subdued trading as investors looked for a spark that might move spreads out of their recent range. The iTraxx Crossover index was marooned on 189.5 basis points, traders said, as credit markets shrugged off declines in stocks sparked by concerns over rising interest rates.
"It's so quiet it's terrible," said a trader in London. "We are seeing spreads get offered tighter, but really there is almost nothing happening." Five-year credit default swaps on France Telecom traded one basis point tighter at 18 basis points, according to HSBC pricing. The cost of insuring debt of Portugal Telecom fell as much as 2 basis points to 34 basis points after the company said it had ended preliminary talks with shareholders in Brazilian telecoms operator Telemar.
Credit analysts at Royal Bank of Scotland said they remained underweight Portugal Telecom, however. In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 41.7 basis points more than similarly-dated government bonds at 1400 GMT, unchanged on the day. Since the beginning of May the index has traded in a 4 basis point range, except for on one day.
Credit markets have appeared tired in recent weeks after a multi-year rally only occasionally interrupted by a fast-moving squall. Concerns over overvalued stocks and the end of a US housing boom in February led to a mini sell-off, but yields soon moved back to near record tight spreads. The market was quiet now for a combination of reasons, said Willem Sels, a strategist at Dresdner Kleinwort.
Earlier on Tuesday, the cost of default protection on German drugs and chemicals group Bayer rose one basis point amid vague bid rumours. In the primary market, Italian automaker Fiat added to a burgeoning corporate pipeline with plans for a 1.0 billion euro 10-year bond, which is set to be priced on Tuesday after orders exceeded 5.25 billion euros, a lead manager said. Fiat had originally announced the deal in late February, but market volatility then forced Fiat to scrap the issue.