European credit indices rose on Thursday after a report showed US consumer price growth slowed sharply in October, easing concerns over higher interest rates in the world's largest economy. Credit markets were also boosted by speculation over renewed issuance of leveraged structured products, which boost demand for index-based default protection.
"The inflation numbers helped us grind tighter, and it felt as if there are structured deals getting ready to print," said one dealer in London. "This rally might continue into the end of the year."
A big drop in energy costs helped drive US consumer prices down by a more-than-expected 0.5 percent in October, the Labour Department said. US government bond prices surged, pushing down yields and reducing the cost of funding for companies, which benchmark yields against sovereign debt.
"It's more evidence that inflation is cooling and that the tightening process that the Fed started over two-years ago has started to have an impact on the economy," said Rick Klingman, head trader on ABN Amro's US Treasury desk in New York.
The iTraxx Crossover index, made up mainly of "junk"-rated credits, traded 3.5 basis points tighter at 235 basis points, a trader in London said. Index spreads have outperformed their cash bond counterparts amid a wave of protection selling from banks offering leveraged exposure to debt for buyers of structured investments such as collateralised debt obligations.
The development of a new type of leveraged credit product - the constant proportion debt obligation, or CPDO - has been credited in recent weeks as playing a major part in a month-long rally in credit markets.
Among single names, General Motors and its finance arm rallied slightly after the US Federal Deposit Insurance Corp approved a bid by Cerberus Capital Management LP [CBS.UL] to buy GMAC Automotive Bank, clearing a hurdle in Cerberus's $14 billion offer for 51 percent of General Motors Acceptance Corp.
Five-year credit default swaps on GMAC fell 3 basis points to 120 basis points, a trader in London said, while GM's 8.375 percent euro bond due 2033 earlier rose 0.25 points to 96 percent of face value.
The cost of default protection on Volkswagen and sports car maker Porsche rose temporarily amid speculation that Porsche might look to increase its stake in, or mount a full bid for, Europe's biggest carmaker.
However, by late afternoon both companies were trading little changed in the default swap market, a trader said, after a media report that Porsche had no intention of increasing its share beyond 29.5 percent.
VW shares rose 3.4 percent by 1625 GMT, helped in part by a Goldman Sachs upgrade to "buy" from "neutral". Belgacom, Belgium's main phone company, will sell 1.65 billion euros ($2.11 billion) of bonds on Friday after receiving about 4-1/2 times that amount of investor orders, a source familiar with the deal said on Thursday.
The demand, from about 260 investor accounts, will allow Belgacom to price the deal at sharply tighter spreads than initial guidance, the source said.
Belgacom will sell a 3-year, 300 million euro floating-rate note (FRN) yielding 13 basis points over Euribor; a 600 million euro, 5-year bond yielding 28 basis points over mid-swaps; and, a 750 million euro 10-year bond yielding 48 basis points over swaps, the source said.
Earlier spread guidance was for 15 to 18 basis points on the FRN, 30 to 35 basis points on the 5-year bond and 50 to 55 basis points on the 10-year bond.
Carnival Plc, the world's largest cruise operator, set spread guidance on its planned 7-year euro bond, a source familiar with the matter said on Thursday.
The benchmark-sized - or 500 million euro-plus - bond will be priced to yield "low 40s" basis points over mid-swaps, the source said. Bristol-Myers Squibb plans to issue a two-part benchmark euro bond, a source familiar with the deal said, split into 10- and 15-year maturities.
Comments
Comments are closed.