The cost of default protection on Portugal Telecom tumbled on Friday after Mexico's Telmex bought a stake in the company, sparking speculation over a take-over bid.
Five-year default swaps on Portugal Telecom traded 20 basis points tighter stood at 168 basis points, meaning it costs 168,000 euros a year to insure 10 million euros of the company's debt against default.
Analysts at the Royal Bank of Scotland said that the Telmex announcement opens the possibility of a new trade buyer for PT, which is trying to fight off a hostile leveraged bid from fellow Portuguese company Sonaecom.
"We have seen a big move there on PT, but otherwise its a quiet," said a trader in London.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 52.2 basis points more than similarly-dated government bonds at 1430 GMT, 0.1 basis points more on the day.
Bonds of TUI fell on Friday as Standard & Poor's reversed its rating outlook on the tourism and container shipping company to negative from positive and Moody's Investors Service then said it might cut its rating.
Moody's said its review of TUI's Ba2 rating came after the company said on Thursday that fuel costs and price pressure at its shipping division would drag down earnings.
S&P said its decision on the outlook on TUI's BB+ rating was driven by the same announcement, which pushed the company's shares to their lowest in nearly two years on Thursday.
TUI finance head Rainer Feuerhake said on Thursday net debt would be 3.1 billion to 3.2 billion euros ($4-4.1 billion) by the end of the year, compared with a previous target of about 3 billion.
The cost of insuring against a default by the company rose 15 basis points to 245 basis points after the S&P action, bringing the total widening in two days to 35 basis points.
Earlier, TUI's 8.625 percent hybrid bond fell one percentage point to 99.5 percent of face value, having fallen 1.5 percentage points on Thursday as the results came out, a trader in Germany said.
The cost of insuring Norske Skog's debt against default rose early in the session after the Norwegian papermaker posted a bigger-than-expected 22 percent drop in second-quarter core profits, and said it would shut down 180,000 tonnes of capacity in South Korea.
Five-year credit default swaps on Norske Skog were marked 5 basis points higher, at 130 basis points on a mid-price basis, a Scandinavian trader said. "It looks bad, and it raises the ratings pressure that this company already has," he said.
Moody's Investors Service downgraded Norske Skog to "junk" in April, while rival Standard & Poor's rates it at BBB-, the lowest level of investment-grade, with a negative outlook.
In the autos sector, the cost of default protection on the financing arm of troubled US automaker Ford continued its recent decline amid speculation over a possible sale of the unit.
Ford said earlier this month it had hired mergers and acquisitions expert Kenneth Leet as an advisor to Chief Executive Bill Ford Jr. to explore strategic alternatives for the automaker.
Five-year credit default swaps on FMCC tightened 5 basis points to 379 basis points, said a trader in London, "We have seen a big rally and I don't see it going much tighter than this," the trader said.
Last month, crosstown rival General Motors Corp said it was considering a three-way alliance with Nissan Motor and Renault SA. GM also plans to sell 51 percent of its finance arm, General Motors Acceptance Corp finance unit, to a group headed by Cerberus Capital Management.
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