Corporate bonds plummet on Italia worst hit

European corporate bonds fell in value on Thursday as investors focused on telecommunications, with Telecom Italia worst hit as Italian investors dumped credit.
Dutch telecommunications firm Koninklijke KPN N.V. bucked the weakening trend after Standard & Poor's lifted its credit rating.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 61.8 basis points more than similarly dated government bonds at around 1538 GMT, 0.9 basis points higher on the day.
"Its an illiquid and weak market with very little real money interest," said a trader. "Telecom Italia is getting smashed alongside a couple of other Italian names - Italian investors are turning sellers of credit."
The cost of credit protection on Telecom Italia rose five basis points to 82 basis points, the trader said. That means it costs 82,000 euros to insure 10 million euros of the company's bonds against default. "That's a big move," the trader said.
The company's bonds were trading four to five basis points wider, said another trader.
Other telecom companies such as France Telecom and Deutsche Telekom saw the cost of credit protection rise by a couple of basis points, the trader said.
Prime Minister Silvio Berlusconi's cabinet on Thursday unexpectedly delayed until Tuesday discussion of an overhaul of Italy's regulatory framework needed to shore up investor confidence following the Parmalat scandal.
The multi-billion euro fraud at food group Parmalat shocked investors around the world and exposed inherent weaknesses in the Italian regulatory system for failing to detect balance-sheet irregularities dating back a decade.
KPN was moving in the opposite direction, however as it had its long-term ratings raised one notch by Standard & Poor's on Thursday.
KPN's long-term corporate credit and senior unsecured debt ratings were raised to A- from BBB+ due to "an improvement of the company's financial profile," the ratings agency said in a statement. The outlook is stable.
Elsewhere, Greece boosted the reopening of its EU-inflation linked 2025 bond to 1.75 billion euros, from 1.25 billion, said bankers involved in the sale. The deal will be priced to yield 20-21 basis points more than France's 2032 bond, bankers said.