Bonds: autos lead declines amid concern over rates

Autos bonds led declines in European corporate bonds on Thursday, with telecoms also dropping, amid concern that US interest rates are set to rise, damping demand for fixed income securities.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 54.3 basis points more than similarly dated government bonds at 1443 GMT, 0.3 basis points more on the day.
"Everybody is getting short again, with the focus on the outlook for interest rates," one trader said. "Flows are fairly light - people are trying to gauge when might be a good time come back in."
Spreads on bonds of General Motors widened around 10 basis points, while Ford benchmarks widened five basis points, the trader said.
General Motors 8.375 bond due in June 2033 was trading about 10 basis points wider at 238 basis points over Bunds at 1443 GMT.
The number of Americans filing initial claims for jobless payments dropped last week to the lowest level since October 2000, the US government said on Thursday, adding to evidence of faster growth that Federal Reserve chairman Alan Greenspan has indicated will prompt interest rates hikes in coming months.
Bonds of Telecom Italia lost value and credit default swaps rose after the company reported first-quarter earnings.
Group earnings before interest, taxation, depreciation and amortisation were 3.494 billion euros and revenues rose 1.7 percent to 7.418 billion euros, the group said in a statement. Revenues were slightly lower than the forecast of 7.472 billion euros. The cost of insuring against default rose about two basis points to 70 basis points, in line with the rest of the sector. That means it costs 70,000 euros to insure 10 million euros of TI debt.
Elsewhere, bonds of British American Tobacco fell in value after reports that US trade regulators may block the proposed $3 billion sale of its Brown and Williamson unit in the United States to R.J. Reynolds on competition grounds.
BAT's 4.375 percent euro bond due June 2011 was four basis points wider at 80 basis points over government debt.
"There is uncertainty in the market and that's the sellers' excuse," said a trader in London.
In the biggest European utility deal this year, Italy's Enel priced a 1.5 billion euro bond split into seven- and 20-year tranches, lead managers said.