Credit Markets Update: Spreads widen on weak earnings and equity news

The protection cost of debt held in another British mobile phone operator, Vodafone, rose marginally following the company's record losses, announced on Tuesday. Vodafone's five-year default spreads widened 5bp to 85bp/95bp, as the market had already factored in a poor earnings performance.

There was strong buying of Swedish mobile phone company Ericsson debt protection, as its five-year spreads widened 40bp to 480bp/520bp. A London-based trader said he had seen large amounts of hedging activity on the name.

In the media sector, news that Vivendi Universal planned to reduce its 63% holding in water subsidiary Vivendi Environment to 43% early this week led to a 50bp contraction in its five-year spreads to 300/320bp. Vivendi was also removed from rating agency Moody’s trigger list - a list of the most vulnerable firms in the market.

Meanwhile, Moody's downgrade of Japan's sovereign credit rating by two notches to A2 caused 10-year default spreads on that country to widen around 2bp to 38/42bp. The widening was not greater due to the market already being short on Japanese protection, said Iftikhar Ali, head of single-name credit trading at Schroder Salomon Smith Barney in London. “There is nothing else out there to buy,” he said.

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