Corporate bonds steady despite equity drops

European corporate bonds held largely steady on Monday, with traders reporting little turnover, despite heavy losses on leading stock indices as fears about security and the state of the world economy increased.
By 1547 GMT, the FTSE Eurotop 300 index of pan-European blue chips was 2.1 percent lower at 956.69 points, while the Dow Jones industrial average was 1.22 percent lower.
But the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 62.6 basis points more than similarly-dated government bonds at 1547 GMT, just 0.5 basis point more on the day.
"Autos are pretty much the only things moving with Ford and GM wider," said one trader. "Overall it's very quiet - people are just looking for something to drive the market - the only thing out there at the moment is equities."
Five-year credit default swaps on Ford Motor Credit Co were trading around five basis points wider at 216 basis points, the trader said.
That means it costs 216,000 euros to insure 10 million euros of Ford debt. General Motors Acceptance Corp default swaps were also about five basis points wider at 185 basis points, he said. But the movement in equities didn't spur trading, which another credit derivatives trader described as "very static."
Investors were largely inactive, traders said. "There's no turnover, and there's not enough volatility for the hedge funds to play," said a bond trader. "Customers are happy where they are."
There was activity in the primary markets, however, with the European high-yield market offering its third new deal in the past two working days to huge demand.
MTU, the aero-engines business sold by DaimlerChrysler, sold a larger than expected 275 million euro high-yield bond on Monday that was 10 times oversubscribed, bankers and investors said.
The 10-year deal was priced at par via J.P. Morgan and CSFB to give a yield of 8.25 percent, below the 8.5 percent indicated in guidance released last week.
Bankers said a broad mix of investors on both sides of the Atlantic bought the bond, the proceeds of which will be used to provide funding for the leveraged buyout of the company by US private equity firm Kohlberg Kravis Roberts & Co.