Trades on Telecom Italia CDSs jump

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Trades on Telecom Italia in the credit derivatives market have rocketed this week, with more volumes outpacing any other group following the group’s announcement to restructure, according to bankers.

Traders said volumes in TI credit default swaps, which provide a kind of insurance against non-payment of corporate debt, had “gone crazy” over the past three days, with the cost of insuring €10m of its bonds up by about €20,000 per year from last week.

Marco Tronchetti Provera, TI chairman, announced on Monday that it would split the group’s mobile and network arms and focus on media operations, which led to fears that the two parts of the group could be being dressed up for sale.

This increased perceptions of the riskiness of TI debt, and the price of insuring €10m of TI bonds over five years jumped on Monday by €26,000 annually to €76,000 as the spread on the CDS jumped from Friday’s close of 50bp to 76bp.

On Wednesday the spread was at about 70bp.

Suki Mann, credit strategist at Société Générale, said: “It seems that TI’s
credibility has taken a hit and that the split into these subsidiaries is less due to regulatory pressure and more that they are being packaged up for an eventual sale.”

Other groups have seen volatility in their CDS prices this week, with big moves in spreads for Scania, the Swedish truckmaker, Hanson, the UK building materials company, and Electrolux, the Swedish household appliance company.

Germany’s MAN confirmed that it was interested in making a bid for Scania.

The B shares of Scania have risen nearly 17 per cent since the start of the week on bid talk speculation.

Hanson was hit by speculation that Mexico’s Cemex could bid for it.

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