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EUR CDS Flow - Choppy CDS market moves wider
Informa Global Markets - Bondwatch Morning Insight (Europe) (September 28, 2007)

Traders described the CDS market as "choppy" on Thursday despite a further rally in equities, with the iTraxx Crossover index initially moving tighter in the morning and then widening out in the afternoon. Initially credit was buoyed by a strong performance in US stocks overnight and a tightening in Ford and GM CDS. News that RBS had tightened guidance on its new preferred securities issue and raised USD 7bln through the sale also helped the sentiment. Later in the day a worse than forecast 8.4% decline in new home sales in the US caused some concern. Though some rumours centred had around a 10% drop. In the single name market spreads movements were mixed with a slightly weaker tone. One trader said that protection levels still looked too tight compared to cash and was expecting further weakness.

After the success of its new issue, (mentioned above), senior 5Y CDS on RBS was unchanged at 17/22 and sub was also flat at 29/34. Elsewhere in the Financial sector it was reported that SEB planned to buy the Swedish government's 19.9% stake in Nordea Bank for SEK 138 per share, or around SEK 71bln (EUR 7.7bln) in total. This caused shares in Nordea to rocket 15.9% on Wednesday's close, though its senior 5Y CDS was flat at 35/40. Senior 5Y CDS on SEB was also unchanged at 15/20.

Amongst the Industrial names traders said that there was little reaction in 5Y CDS on Saint-Gobain, which was 1bp tighter at 44/49, though shares in the company jumped 5.5% higher on Wednesday's close after French investment firm Wendel said that it had acquired a 6% stake in the company, valued at around EUR 1.56bln. Wendel said that it planned a "friendly and constructive dialogue with (the) management" of Saint-Gobain. Elsewhere in the sector shares in DSM were also up, around 5.7% on Wednesday's close, after the company raised its FY operating profit forecast and its annual organic sales growth target. 5Y CDS on DSM was 2bp wider at 25/28 despite the company also announcing a EUR 750mln share buy back and discussing the possibility of a new benchmark Eurobond issue. Later Moody's downgraded its rating on DSM stating that the proposed corporate actions would weaken the company's credit metrics. Traders said that there was also a "wave of action" in the paper makers in the industrial sector that pushed spreads wider, but could not provide reason why. 5Y CDS on Stora Enso was 4bp wider at 77/85 as was UPM at 59/64.

In the Crossover sector 5Y CDS on British Airways moved 7bp wider to 95/101 after the company said that it would get USD 1.5bln of debt from banks by 2011 to cover the purchase of 36 new planes from Boeing and Airbus, worth USD 8.4bln at list prices. Elsewhere, 5Y CDS on Havas was unchanged at 240/260 after the company reported late on Wednesday that H1 operating profit rose 33.9% Y/Y.

In the Auto sector BMW announced a new "strategic realignment" which included raising its profitability targets and said it would increasing its dividend substantially. The company also said it would retain the option of conducting a share buy-back and that acquisitions remained on its agenda. 5Y CDS on BMW was flat at 24/27.



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