UTILITIES
- Utilities spreads performed in-line over the week. At the risk of sounding like a broken record, Thames Water dominated once again. Price convergence was the theme; 32s up 1.75pts on the week to 69.25, others 1.5-2.25pts lower in a 71-74.50 price range. Bonds were under pressure before the 2-notch downgrade from Moody’s; that triggered a 3-4 point drop but bonds have bounced and now trade higher than before that action. We think the 70c point is in focus for some investors with haircuts unlikely to exceed 30c. Perversely, in our view the downgrade could be a positive for bondholders if it triggers SAR sooner. If SAR is inevitable, we would argue the sooner it happens the better, with less emergency cash required from the government.
- Severn Trent braved the £ market with a new issue and will have been pleased to get that done with the sector in the spotlight, although it came at the cost of ~15bp secondary widening and large NIC. Euro bonds were barely affected.
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