Why The Nervousness In Telecoms?

The CDS spread on telecommunications companies widened 5.3% last week, and are now trading 8.2% wide of historical levels, Fitch Research reports. On might wonder what’s bothering the investors about the telecoms? Is the market starting to price in the possible effect on the coming solar storms?

‘There is clearly a persistent negative bias toward telecoms, which may prefigure an increased likelihood of CDS negative implied rating volatility.”

Jonathan Di Giambattista

Renewed unrest among telecoms and sovereigns have driven global credit default swap (CDS) spreads 3% wider, according to Fitch Solutions in its latest Risk and Performance Monitor (RPM). The rise in sovereigns is understandable, but the seemingly systematic shifts in market sentiment for telecoms is somewhat more remarkable.

Telecommunications companies widened 5.3% and are now trading 8.2% wide of historical levels.

“There is clearly a persistent negative bias toward telecoms, which may prefigure an increased likelihood of CDS negative implied rating volatility,” says Author and Managing Director Jonathan Di Giambattista at Fitch Research.

Elsewhere, sovereign spreads widened 4.8%, with all major regions increasing.

The biggest mover was European sovereigns (6.4%) followed by Americas/Oceania (4.2%) and lastly, Asian sovereigns (3.9%). ‘Spreads among all major sovereign regions rose above the 3% market average,’ says Di Giambattista.

This week saw the telecommunication sector spreads increase by 5.35%, the most of any sector in the CDS universe. Asian telecoms widened the most, with spreads increasing 10.6%, followed by Europe with 6.4% and the Americas/Oceania with 1.85%.

“The sector’s ARD rose to 8.2%, which is relatively high, suggesting that the market is showing a persistent negative bias toward telecoms and signaling an increased likelihood of CDS negative implied rating volatility within this sector,” Di Giambattista says.

Based on historical analysis, notch differentials between the CDS IR and agency rating are highly predictive of future rating agency actions.

Eircom, Embarq and Telecom Corporation of New Zealand Limited experienced a one-notch CDS IR downgrade over the past week.

Why The Telecoms?

The widening in sovereigns CDS is pretty easy to understand, especially after the rather hairy report from IMF yesterday, predicting the debt/GDP-ration in Europe to rise by 400% towards 2050, if fiscal policy is not changed.

The telecommunication industry is a cyclical sector, but the moves we are seeing now is bigger than ever.

Could it be that the market is staring to price in potentially effects of the Solar Max storms, predicted to hit the Earth by the end of nest year?

In any case; the telecoms are the sector who is most exposed to harmful effects by the most powerful solar flare eruption in more than 100 years.

Read the full post at The Swapper.

Related by the Econotwist:

Expert: Sun Storm To Hit With Force Of 100 million H-Bombs

The Sun Is Speaking!

NASA Discover New Form Of Space Weather; Has Power Of Earthquake

NASA: Solar Tsunami To Hit Earth, Tuesday

Siberian Shaman: 2012 Solar Storms Will Trigger Collapse Of The West

The Earth: A Danger Zone

NASA Prepares For Impact – Nasty Space Weather Ahead

When Will God Destroy Our Money?

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