Telecom Italia led a squadron of new deals on Wednesday, as borrowers rushed to exploit tight spreads amid speculation that they may widen, while investors awaited a key Federal Reserve interest rate decision.
Telecom Italia, one of Europe's big three telecom borrowers, plans to sell an 8-year benchmark euro bond and 17-year sterling bond, said a banker familiar with the deal, in its first fixed-rate offering since September.
Price talk emerging from Italy suggested the euro bond would yield slightly more than 70 basis points over mid-swaps, in line with existing debt, and the sterling bond about 130 basis points over gilts.
There was interest in an innovative 750-million euro ($960 million) hybrid sale by Italian lottery company Lottomatica. The bond, priced at par with an 8.25 percent coupon, combines elements of debt and equity, protecting the issuer's credit rating and offering investors higher returns.
French automaker Renault sold a 500 million euro seven-year bond, attracting 1.5 billion euros of orders, while compatriot Bouygues boosted its planned 7- and 10-year bonds to as much as 1.85 billion euros.
French highway operator Cofiroute got in on the act, trimming price talk on its planned 600 million euro offering, suggesting investors welcomed the deal after a relatively quiet period in the primary markets.
"There are quite a few sales and that may be why the secondary market is relatively quiet," said one trader. "We had a busy day yesterday and, with the recent spread widening, people might also be taking some time to decide what to do next."
The iTraxx Crossover credit default swap index tightened 2 basis points, paring its widening of about 10 basis points in recent sessions, to end the day bid at 233 basis points, another trader said.
GMAC, among the most liquid contracts in the credit markets, held steady around 310 basis points, he said, after tightening by about 25 basis points in US hours on Tuesday.
General Motors Corp Chairman and Chief Executive Rick Wagoner said on Tuesday that resolving labour issues with former subsidiary Delphi Corp was an urgent priority for the largest US automaker. Wagoner called a resolution to the Delphi situation "the next order of business for us".
Spreads held steady, with the cost of default protection on Altadis trading little changed at 42 basis points after reporting lower first-quarter profits, while Valeo was unchanged at 51 basis points. Some investors were reluctant to take big gets ahead of a US Federal Reserve interest rate decision due later on Wednesday, traders said.
The Fed is set to raise interest rates to the highest level in five years and may use a post-meeting statement to open the door to a pause after 16 consecutive, well-telegraphed hikes. Convening for only the second time under Chairman Ben Bernanke, the central bank's policy-setting Federal Open Market Committee appears certain to raise the overnight federal funds rate by a quarter-percentage point to 5 percent.
Some economists think the widely anticipated rate increase will be the last in the current cycle, while others say officials might take no action at their subsequent meeting in June but the economy's momentum will force a rise later.
Higher interest rates hurt bonds because they erode the value of their fixed returns and boost borrowing costs for companies.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 46.1 basis points more than similarly dated government bonds at 1440 GMT, 0.3 basis points more on the day.
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