Trading in European corporate bonds picked up on Tuesday, with merger and acquisition concerns continuing to drive flows and putting prices under pressure for the most part.
Credit of telecommunications firms tracked wider, traders said, led by Telekom Austria, a perennial subject of take-over rumours. Five-year default protection on the company traded as much as 10 basis points wider at 67 basis points.
Five-year default swaps on KPN were around two basis points wider, bid at 61 basis points, while Hellenic Telecom, in which the Greek government has a 37 percent stake, saw its protection three wider at 42 basis points.
"There is no news but a general concern over buy-outs," said a trader in London. "That is dragging the whole market a bit wider."
Telecom bonds have seen brisk selling since the $12 billion private equity bid for Danish telecom TDC last week raised concerns over leveraged take-overs that load target firms' balance sheets with debt.
Elsewhere, autos also suffered with default swaps on General Motors Acceptance Corp, the financing arm of troubled US automaker General Motors, around 20 basis points wider at 550 basis points as investors shrugged off news on Monday that the company plans to sell up to $20 billion of assets.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 41.4 basis points more than similarly-dated government bonds at 1550 GMT, 0.3 basis points more on the day.
TIM HELLAS TICKS UP, ALMATIS DROPS In the high-yield market, M&A was also in focus. Greek mobile phone operator TIM Hellas gained after the chief executive of Orascom, Naguib Sawiris, said he was considering a bid for the company.
TIM Hellas 8.5 percent euro bonds due 2013 ticked up 0.25 percentage points on the news to be bid at 103.5 percent of face value, a trader in London said.
He said it was not clear what Sawiris would do with the bonds if he were to go ahead with the acquisition.
He noted that for instance, if TIM Hellas were acquired by a major investment-grade telecoms operator, the company's high-yield bonds would be likely to be bought back at a premium, but that this could not be guaranteed in a deal with Orascom.
The 9.75 percent euro bond due 2015 issued by Wind, acquired by Sawiris earlier this year, was bid at 105.75 percent of face value, the trader said.
Meanwhile, bonds of speciality alumina materials producer Almatis fell on Tuesday after the company said an agreement for it to be acquired by investment group Investcorp had been terminated by mutual consent.
Almatis's 9 percent euro bonds due 2012 fell 3 points to 112 percent of face value, a trader in London said, adding that there was a possibility another buyer could step in.
COCA-COLA DUE WEDNESDAY In an otherwise becalmed primary market, a unit of Coca-Cola Enterprises is gearing up to sell a two-part euro bond, with pricing due on Wednesday, a source familiar with the deal said on Tuesday.
The issuer has tightened the spread on the 350 million euro 3-year bond it plans to sell to 18 basis points over swaps from around 20 basis points over, usually a sign of good demand.
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