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1 Piece of News, 2 Different Outcomes

16 September 2014 by lberuti

It was a rather weak session for most of the day, until late headlines of potential easing by the PBOC and a WSJ article pointing to a dovish FOMC outcome tomorrow fueled an index rally to the closest round numbers (60 on iTraxx Main and CDX IG and 250 on iTraxx Crossover) which are incidently large pins for options due to expire tomorrow. While single name protection felt well bid throughout the day across the board, the same rumours provided the out and underperformer in the Telco sector. An Italian paper reported that TITIM ( Telecom Italia Spa) would be studying an alliance with OI in Brazil. The immediate reaction was to send TITIM risk premium 12bps wider while PORTEL's ( Portugal Telecom SGPS SA) was 10bps tighter. But one can easily imagine scenarios where TITIM would make a right issue and any operation would need to pass the regulators' scrutiny in Brasil. Expect more volatility on these names going forward.