Credit default swaps on retailer J Sainsbury Plc continued to tighten early on Thursday after Wednesday's collapse of the potential private equity bid for the company.
The broader market, meanwhile, shrugged off overnight weakness in equities, with the iTraxx Crossover index, viewed as a barometer of risk appetite, grinding tighter and the market tone remaining firm.
Five-year default swaps on Sainsbury fell 10 basis points to 45 basis points by 0740 GMT, a trader in London said, bringing the rally since Tuesday to around 95 basis points.
The move drove spreads on a range of retail names tighter, with Kingfisher, a perennial subject of LBO speculation, 8 basis points tighter at 63.5 basis points, according to Deutsche Bank.
CDS on French auto parts maker Valeo edged 3 basis points wider to 125 basis points, after French newspaper Les Echos said several investment funds were eyeing the company.
Elsewhere, the market maintained Wednesday's firm tone, despite a 0.7 percent decline in the Dow Jones Industrial Average as minutes from last month's Federal Reserve meeting hinted at the need for more rate hikes. The iTraxx Crossover index of 50 mostly "junk-rated" credits, was at 212 basis points by 0745 GMT, a trader in London said, 2 basis points tighter on the day.
In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 45.6 basis points more than similarly dated government bonds at 0808 GMT, 0.1 basis points more on the day.
Breaking the calm in the primary market, East Japan Railway Company is working on a benchmark sterling bond due 2033, a banking source said on Thursday. The bond is set to be priced on Friday to yield around 65 basis points over gilts, the source said.
In underlying government bond markets, the yield on the interest rate sensitive two-year Schatz was 4.103 percent, 1.2 basis points more on the day. The 10-year Bund yielded 4.153 percent, 0.6 basis points less. The 10-year euro swap rate was 4.416 percent.
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