The telecoms sector was the focus of the international bond market on Thursday as France Telecom sold a three-part bond worth nearly 2.5 billion euros and Telecom Italia lined up a 3.0 billion euro deal.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 55.0 basis points more than similarly dated government bonds at around 1605 GMT, 0.1 basis points less on the day.
"People knew that supply would be the thing to halt the spread rally in January, but this isn't enough," said a telecoms bond trader. "Telecoms are tighter today because the supply is not sufficient to fill demand."
"TI is going to be the same story," he added.
France Telecom saw huge demand for its bond, a deal that showed how far the company's efforts to repair its balance sheet have come.
The company offered a 1.0 billion euro three-year floating rate note which pays a coupon of 25 basis points over three-month Euribor. The note was priced at 99.854 percent of face value.
It also sold a 750 million euro fixed-rate 2012 bond which pays a coupon of 4.625 percent and was priced to give a spread of 58 basis points over mid-swaps and a 500 million pound 2034 bond with a coupon of 5.625 percent at a spread of 90 basis points over gilts.
The new issues tightened a couple of basis points in the secondary market after launch, traders said, in line with the rest of the telecoms sector.
France Telecom's debt hit 70 billion euros and its ratings reached the brink of "junk" territory in 2002 as the market worried about how the company would deal with the legacy of billions of euros of borrowing for mobile-phone licences.
But a massive bailout plan backed by the French government including a 15 billion euro rights issue in March halted the long decline in the company's credit quality.
Its bonds have soared in value over the last year, with spreads versus government debt tightening by hundreds of basis points.
Telecom Italia plans to launch a three billion-euro three-part bond in mid-January, sources said.
In the wider market auto bonds were little changed while industrial credits fared well.
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