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EUR CDS Flow - Decent volumes accompany a firmer tone
Informa Global Markets - Bondwatch Morning Insight (Europe) (November 17, 2006)

A firmer tone was witnessed in the CDS market on Thursday as demonstrated by the iTraxx indices which tightened a touch after lacking direction in the first half of the week. Single names were broadly either unchanged or slightly tighter and volumes were described as "decent" with a range of participants and both buyers and sellers.

In the Financial sector, senior 5Y CDS on Royal & Sun Alliance was unchanged on Thursday at 9/11 after reports in the FT on Wednesday that it is a potential takeover target for Finnish insurer Sampo. The Finnish firm will receive EUR 4bln cash from the sale of its banking arm to Danske Bank, which it has already ruled out returning to shareholders. On Thursday Danske announced a new share issue to raise EUR 1.88bln to help fund the purchase of Sampo Bank which was completed successfully on the same day and raised DKK 14.67bln (EUR 1.97bln). Senior 5Y CDS on Danske Bank remained flat at 3.75/5.75 on Thursday. Also on Thursday, senior 5Y CDS remained unchanged on Allianz at 6/8 whilst sub tightened to 10/13 (-1) after the company dropped its bid for John Laing.

Meanwhile, senior 5Y CDS on HVB stayed flat at 6/8 with the news that the German bank reduced its stake in Munich Re. 5Y CDS on Munich Re was also unchanged at 6/8 and 14/17 for senior and sub respectively. Note that earnings announcements were released on Thursday by the following banks (5Y senior CDS in brackets): Bank of Ireland (5/8), BNP Paribas (4.5/6.5), Dexia (7/9), IKB (10/14) and Zurich Financial (8/11). These earnings figures had no effect on the senior 5Y CDS.

Earnings did have an effect in TMT where 5Y CDS on Vivendi moved tighter to 48/51 (-4) on the back of good Q3 results. Also in the sector, contacts said on that 5Y CDS on ITV was moving tighter to 170/175 (-5), with a trade as low as 170. Carlton Communications" 5Y CDS was seen trading as low as 80 and ended Thursday 4bp lower at 85/90. The contacts view was that the merger between NTL and ITV is now looking less likely and that this was reflected in the movements of the 5Y CDS. Note that after the ITV also reported a late jump in Christmas advertising revenue on ITV1. Dealers covering Auto names reported sustained heightened volumes in 5Y CDS on Porsche with trade noted at 24 with a market said to be centered on a mid of 23. Note that on Wednesday the contract traded as low as 20.



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