European corporate bonds jump on payroll optimism

European corporate bonds rose strongly on Friday after a report showing lower unemployment in the United States boosted demand for riskier assets.
Covering of speculative short positions also helped push credit spreads tighter, traders said.
"We are substantially better with both autos and telecom spreads as much as seven basis points tighter at the long end," said one trader.
General Motors 8.375 bond due in June 2033 was seven basis points tighter at 270 basis points over Bunds. The spread has tightened 18 basis points in the past week. Ford's 5.75 percent bond due in 2009 was around four basis points tighter at 112 basis points over.
France Telecom's 8.125 percent bond due in January 2033 traded around four basis points tighter at 106 basis points over government bonds, the trader said.
The US job market brightened modestly in August as employers added 144,000 workers to payrolls and hiring totals for the two prior months were revised upwards, the Labour Department reported on Friday. Economists surveyed by Reuters had predicted a rise of 150,000.
The August unemployment rate dropped to 5.4 percent from 5.5 percent in July, the government said.
Safe-haven government bonds fell after the report, while the FTSE Eurotop 300 index of leading European shares was 0.8 percent higher at 1439 GMT.
"There's still some short positions in the (bond) market which need covering and that should continue to give support," said a trader.
Traders said bonds also drew support from demand for collaterised debt obligations (CDO) in which banks manufacture baskets of debt to disperse individual credit risk.
In synthetic CDO deals, investors sell credit default swaps (CDS) to the banks arranging the CDOs, lowering the cost of insuring against default. In turn, the banks buy cash bonds to balance their books, pushing cash spreads tighter.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average of 46.5 basis points more than similarly-dated government bonds at 1426 GMT, 0.5 basis points less on the day.
Some US exchanges will close early on Friday because of Monday's Labour Day holiday.
The investment grade primary market remained subdued, with little in the pipeline.
In the high-yield market, German bathroom fixture maker Grohe will begin road-shows for a 335 million euro senior high-yield note on Tuesday.
In the asset-backed market, Northern Rock will road-show a 4 billion pound sterling Residential Mortgage Backed Security (RMBS) next week, while Delta Lloyd may set price talk for a 1 billion euro Dutch RMBS.
RMAC, a special purpose vehicle for General Motors may set price talk for a 500 million pound sterling equivalent UK RMBS, and Sweden's Framtiden may price a 294 million euro housing bond.