Bonds: spreads tighten, focus shifts to new deals

European corporate bonds started the week slightly higher in average value, although activity was limited, with the focus on details of forthcoming deals from borrowers such as TUI and Cadbury Schweppes.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 55.2 basis points more than similarly dated government bonds at 1501 GMT, 0.3 basis points less on the day.
"Auto bonds have been slightly tighter, but not much has happened since the US markets opened," a bond trader in London said.
Among auto bonds, some of the most liquid bonds in the European market, Ford's 5.75 percent bond due in January 2009 ended Monday about two basis points tighter at 151 basis points over government debt.
General Motors' 8.375 percent bond due in June 2033 was unchanged at 254 basis points over government bonds.
Another trader said that outside distractions such as the Wimbledon tennis tournament and the Euro 2004 soccer championship were conspiring to draw attention away from the credit markets, where the range-bound mood means little in the way of trading opportunities.
"The markets just aren't very volatile at the moment," he said.
In the primary market, German travel firm TUI AG has set price guidance for its planned 250 million euro floating-rate note due 2009, a banker familiar with the sale said on Monday.
Pricing of the note, expected to yield 215 to 230 basis points over three-month Euribor, is due by the middle of the week. Royal Bank of Scotland and WestLB are managing the sale. TUI is not rated by any of the major ratings agencies.
The company will pay investors an extra 75 basis points in interest if it fails to get a credit rating within 18 months of the bond being issued.
Meanwhile, Swiss Life Holding's 300-million-euro four-year bond is expected to price at 85 basis points over swaps, a source familiar with the deal said on Monday.
Swiss Life is issuing the BBB+ rated bond to refinance three expiring exchangeable issues. The company said on Friday it expected pricing of the bond to be completed by Monday. Goldman Sachs and UBS are managing the sale.