Bonds market volatile on US data, high-yield hammered

European corporate bonds had a volatile session on Friday, jostled by US data, while the high-yield market took a battering on both sides of the Atlantic as investors continued to pull funds out of the asset class.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 57.4 basis points more than similarly dated government bonds at 1503 GMT, 0.4 basis points higher on the day.
Industrials in particular had an erratic day. "After the first set of numbers we had a small rally, but now after the second set we're going a bit wider. There's been lots of intraday volatility," said one trader.
Firm US inflation and production data supported market expectations that the Federal Reserve will hike interest rates by 25 basis points in June.
While the Fed has promised to be measured in its tightening, investors are worried that rising inflation could force them to move faster.
The headline consumer price index rose 0.2 percent in April, when analysts had looked for a 0.3 percent gain, although the more important core index firmed 0.3 percent, against forecasts for a 0.2 percent rise.
The release of the data may have given a fillip to prospects for issuance, which has been quiet in recent days in the investment-grade market. "The numbers have been quite kind to us," said one syndicate banker. "Over the past couple of days, investors have been completely sidelined ahead of the data, but now we're getting quite a good response from the market."
High-beta credits - those that are more sensitive to moves in the underlying market and that tend to have wider spreads - were two to four basis points wider by mid-afternoon, the trader said, led by Italian defence and engineering group Finmeccanica.
Finmeccanica late on Thursday posted a first-quarter group net loss of 34.8 million euros. Five-year default swaps on Finmeccanica were five basis points higher at around 72 basis points on Friday afternoon, having risen as high as 77 basis points, the trader said.
The European high-yield market came under more pressure on Friday as investors pulled money out of the asset class in the US, further unsettling already nervous market players this side of the Atlantic, traders said.