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EUR CDS Flow - DSM stands out against firmer feel
Informa Global Markets - Bondwatch Morning Insight (Europe) (December 13, 2006)

There were mixed reports coming from the dealer community on Wednesday with some reporting a continuation of the low volumes and little movement in single name CDS levels, while others said they "had got quite a lot done". The day"s main event was the strong US retail sales figures, which caused a rally in equities and gave the iTraxx CDS indices a firmer tone. In fact the Crossover index broke the 230 barrier to print at a new low of 227 before coming off the tights. The sentiment transferred to the single name CDS market too, causing single names in the Crossover sector, for example, to tighten by 3-5bp in general. However, there was a lack of credit stories to cause particular single names to move more than others.

Standing out against the slight tightening though, was the Industrial sector"s DSM, on which 5Y CDS was 3bp wider at 21/24 on the back of one dealer"s research which labelled the company as a potential LBO target. The dealer argued that protection on the name had tightened in too much recently (5Y CDS was over 30bp at the end of September) and therefore it envisaged little downside in buying the CDS. Elsewhere in the sector, ABB said that it may spend "several" billion dollars on acquisitions from 2007 onwards, but would hold on to its investment grade rating. 5Y CDS on ABB was flat at 28/30. Active names included Degussa, 5Y CDS on which, having widened on Tuesday's news of a delay to RAG"s IPO, crept out 1bp further to 83/88 with trade noted at 88, while 5Y CDS on ThyssenKrupp traded at 44 in a market of 42/46 (-).

In the Financial sector, 5Y CDS on Hannover Re remained unchanged with senior at 8/10 and sub at 19/22, following the sale of its US unit Praetorian Financial Group for USD 800mln. Despite the lack of movement in CDS, contacts commented that the sale is good news for credit investors given the reduced risk associated with disposing of the asset with focus turning to its core business. Meanwhile, Auto names were a touch tighter, with 5Y CDS on the relatively high-Beta DaimlerChrysler moving to 52/55 (-3) with trade at 54, though contacts described the move as in line with the market. Other active 5Y CDS on Auto names included Volkswagen, which traded at 26.5 in a market of 25/27 (-).



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