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To: pater tenebrarum who wrote (63375)	1/31/2001 9:34:17 AM
From: Box-By-The-Riviera™	Read Replies (1) \| Respond to of 436258

Default swaps..... and the bad news is? LONDON, Jan 31 (Reuters) - Credit protection costs on telecoms and banks held tight on Wednesday morning as expectations of a U.S. interest rate cut mounted and after a French telecom firm withdrew from a UMTS phone auction. In contrast, default swaps on German-U.S. car giant DaimlerChrylser <DCXGn.DE><DCX.N> widened after it hired two banks to advise against hostile bids, fuelling concerns about the automaker's future. Default swaps are insurance-like instruments enabling investors to juggle exposures to default or other credit events on an underlying loan or bond. U.S. interest rates are the main market focus. All 25 U.S. primary dealers polled by Reuters expect the Federal Reserve to cut rates by 50 basis points later on Wednesday. A credit derivative trader for a large U.S. bank here said rate cut hopes offset worries about higher U.S. corporate defaults in 2001. Default swaps on banks have been coming in since the back end of last week, the trader said, adding, "Clearly, it's due to interest rates." Five-year default swaps on Citicorp <C.N> were in a bid/offer spread of 35/45, around five basis points narrower since Monday. The spread was 15 bps wider in mid-January, according to indicative prices from online broker CreditTrade. The trader said Bank of America <BAC.N> was cited at 45/55. No bids were seen Wednesday morning. Default swaps have inched in a couple of basis points since Monday, he said. Price spreads on Deutsche Bank <DBKGn.DE> were last seen at 15/20, tightening a couple of basis points from Tuesday, the dealer said. Rising bad debts for U.S. banks remain a concern, however. On Tuesday, rating agency Standard & Poor's predicted there could be defaults on up to $60 billion of U.S. corporate bonds and bank loans this year due to the slowing U.S. economy. COLD FEET ON 3-G LICENCES Default swaps on telecoms held steady or tightened slightly after France's Bouygues Telecom <BOUY.PA> said it would withdraw from thecountry's third generation mobile phone licence contest. The move added to market perceptions that telecoms are keen to protect balance sheets. "I would expect this (withdrawal) to help other firms," said a trader for a German bank here. Although they saw no quotes for Bouygues, traders said France Telecom <FTE.PA> had tightened between five and 10 bps since Monday to 135/145, while Deutsche Telekom <DTEGn.DE> had tightened by the same degree to 110/120. Bouygues' withdrawal from the UMTS auction follows a similar decision by Spain's Telefonica <TEF.MC> last week. TAKEOVER CHATTER IN AUTOS Credit protection costs on DaimlerChrysler widened slightly after the automaker said it had hired Deutsche Bank and J.P. Morgan Chase to advise on how to head off a hostile bid. It was cited at 105/115 on Wednesday, a widening of 10 bps. Sources told Reuters that only Japan's Toyota Motor Corp <7203.T> had the resources to make such a bid. However, Toyota later denied having any interest in acquiring the carmaker.