EUR CDS Flow - Structured bid pushes 5Y CDS levels tighter
Informa Global Markets - Bondwatch Morning Insight (Europe) (November 3, 2006)
Market contacts reported a strong structured bid in the market on Thursday, with single name credit spreads broadly moving tighter in the face of weaker US and European equity markets. Contacts commented that 5Y CDS levels were between 2-4bp tighter D/D all-in-all, other than names with particularly tight spreads (i.e. sub 25bp).
Auto names in particular demonstrated relatively active trade on Thursday with a decent move tighter, even in German carmaker BMW which, despite reporting that Q3 net income fell a marginal 0.7% Y/Y to EUR 452mln (below expectations), spreads pushed 1bp tighter D/D to 11/13. US Oct auto sales were largely brushed over however despite European carmakers reporting Y/Y declines, although this was somewhat offset by a 12% jump in French auto sales (led by Renault and Fiat), alongside an 8.1% Y/Y rise in Oct new car registrations in Spain. Note that 5Y CDS on Renault moved 5bp tighter D/D to 29/33 whilst Crossover name Fiat also edged 5bp firmer to 110/120. Elsewhere trade was seen in DCX at 51 (48/50, -2bp), truckmaker Volvo at 26 (27/29, -1bp) and VW at 23 (23/25, -1bp). Note that German truckmaker MAN AG reported expectation-beating results during Q3, with contacts quoting its (very illiquid) 5Y CDS at 43/50 (-2bp D/D), whilst Swedish counterpart Scania was also 2bp tighter at 27/31. The Auto Parts sector witnessed its fair share of movement on Thursday with German parts maker Continental initially moving wider to 50/54 after disappointing results on Wednesday, although levels snapped back after the bid was hit at 50 to be seen at 47/50 towards the close (+2bp D/D). French car parts maker Valeo saw a significant -11bp D/D move to 66/68 with trade seen at 70 in the session, whilst GKN traded at 53 with spreads left at 50/55 (-2bp).
Elsewhere in the Crossover sector 5Y CDS on Dutch retailer Ahold shot tighter on initial trade seen at 104 with spreads subsequently moving down to 96/98 (-12bp D/D) after the company reported a 0.7% Y/Y rise in Q3 2006 sales figures to EUR 10.3bln, although note that the CDS reaction was less connected to the Q3 figures and more looking towards expected good news in relation to the company's sale of its central Europe operations and assets in the US. Consumer names were also busy with 5Y CDS on French retailer PPR edging in around -5bp D/D to 41/44 following a report in Il Sole 24 Ore that the group is studying acquisitions in France and Italy. Note that its strong presence in these markets is likely to offer substantial synergies for complementary acquisitions. UK home improvement retailer Kingfisher traded at 42 with 5Y CDS marked 1bp tighter D/D at 42/45 whilst flow was also heard in French retailer Casino-Guichard at 49.5 (50/52, flat D/D) and UK retail group GUS with trade at 33 and spreads 2bp firmer at 35/39.