European telco news hits default swap market

European telecoms are back in the headlines this week, causing a surge of buying and selling activity in the market for default protection on active names. Rumours of a possible merger between Olivetti and Telecom Italia have intensified over the week and were finally confirmed this morning.

Market participants viewed the development as more favourable for Olivetti. The company’s shares rose 14%, compared with a fall in Telecom Italia shares by about 8%.

Trading in credit default swaps for Deutsche Telekom and France Telecom was also active. In trading yesterday, spreads for five-year default protection for both names widened by 8bp to around 222bp-mid, although traders said spreads retraced part of that widening in trading today.

Five-year credit protection for Nokia widened by 5bp

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