Corporate bonds focussed on results, equities

Stronger equity markets and surging US consumer confidence data gave European corporate bond markets a positive tone on Tuesday. The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 51.3 basis points more than similarly dated government bonds at 1450 GMT, a new lifetime low for the index and 0.5 basis points less on the day.
However, trading remained thin with corporate results the main focus.
France Telecom reported net profit fell in the first half in line with expectations, but said operating profit rose thanks to its Orange mobile unit. The figures were broadly in line with forecasts and had little effect on the company's outstanding bonds, traders said.
France Telecom said net debt stood at 48 billion euros at the end of June, which included a 3.6 billion euro accounting charge.
"We believe that FT's management remains committed to further debt reduction and that the company will achieve a single A credit profile over time," said SEB credit analyst Louis Landeman in a note, adding that he did not foresee rating actions from Moody's Investors Service or Standard & Poor's before the first half of 2005.
S&P currently assigns France Telecom a BBB+ rating, while Moody's rates the company one notch lower at Baa2. Telecom Italia is also due to report first half earnings later on Tuesday.
Auto bonds, one of the most liquid sectors in the credit markets, tightened a couple of basis points. PSA Peugeot Citroen's bonds moved in line with the wider market after the French carmaker posted first-half profits which fell less than expected, and hinted at a brighter outlook.
Peugeot's 6.0 percent euro bonds due September 2033 were two basis points tighter at 93 basis points over government debt by around 1410 GMT, a trader said.
The positive tone was underpinned by European shares clambering off a 2004 low on Tuesday, with US stock markets also gaining, while a report showed US consumers grew more confident about the economy in July.
The cost of credit protection for Finland's UPM-Kymmene, the world's biggest magazine paper maker, fell three basis points to 59 basis points after the company issued better-than-expected second-quarter results, a trader said.