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EUR CDS Flow - CDO activity pushes spreads tighter
Informa Global Markets - Bondwatch Morning Insight (Europe) (October 13, 2006)

The CDS market had a firmer tone to it on Thursday following a strong start in European equity markets. Contacts commented that credit spreads were starting to catch up with outperformance seen in equities of late and talk in the market of CDO activity also explained a degree of tightening in single name spreads.

Such "bid list" activity appeared to be prevalent in TMT with many names 1-2bp tighter D/D, despite a lack market-moving news. To illustrate 5Y CDS on German publisher Bertelsmann was seen at 31/34 (-1bp D/D) with trade seen at 31, TeliaSonera moved 1.5bp firmer to 40/43 with trade at 42 whilst Deutsche Telekom also traded down at 42 with spreads at 41/44 (-1bp). In addition BT at 41/44 (-1bp), KPN at 58/61 (-1bp) and Telefonica at 42/45 (-1bp) - the (bid) list could go on. In terms of news related movement, French media firm Thomson reported Q3 core business revenue of EUR 1.401bln (up 10% Y/Y), though dealers said that 5Y CDS failed to trade with spreads left at 70/77 (+1bp). Activity was seen in UK TV broadcaster ITV following confirmation late on Wednesday from the chairman of UK publishing company Johnston Press, Roger Parry, that he has no intention of bidding for the company. 5Y CDS responded positively with a -4bp D/D move to 105/115.

Elsewhere Scania stole the limelight in the Auto sector as its Q3 results beat expectations. Following the release of the figures, the company said that it expects double-digit annual sales growth. It was also in the news as MAN revealed that it had acquired 14.27% of the voting rights of Scania although the Swedish company said that it is "not the best way of entering into friendly talks". 5Y CDS on Scania was at 31/34 (+1). In Consumers 5Y CDS on PPR was also active, although in light volume, with contacts reporting a high print of 56 and subsequent trades at 51 and 50. The widening followed a report in Les Echos that Pinault was ready to bid EUR 18bln for Suez"s environmental operations. 5Y CDS PPR was last seen at 49/52 (+2).



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