Bonds: high-yield names gain

High-yield names Rhodia, Ahold and Corus all gained in the European corporate bond market on Monday while investment-grade credit started the week in sluggish trade, cooling down after a strong start in the morning.
"The market wanted to go tighter after very strong equities in New York on Friday and good (car sales) numbers from General Motors," said one investment-grade bond trader in London. "But there wasn't any real money buying. People were expecting a rally but it doesn't have any legs to it."
Among names with "junk" ratings, Rhodia's 10.5 percent euro bonds maturing in June 2010 rose two points to 107 percent of face value, a trader said.
The French chemicals maker gained after it said the worst for the battered sector seemed to be over and was helped by Citigroup upgrading its share recommendation for the group.
Rhodia's credit default swaps (CDS) fell around 50 basis points to 520 basis points on the day, traders said. The price means it costs 520,000 euros a year to insure 10 million euros of Rhodia debt against default.
Elsewhere in the high-yield market, CDS for Anglo-Dutch steel-maker Corus tightened 15 basis points to around 258 basis points after the group said it expects to increase spot steel prices in the first quarter of next year.
The cost of insuring against default by Dutch retailer Ahold also fell around 15 basis points to some 143 basis points, a trader said.
The group agreed to sell its Spanish assets to venture capital group Permira for 685 million euros ($841.2 million), a better price than analysts had expected.
In the investment-grade world, the FTSE Euro Corporate Bond Index showed corporate bonds in euros yielding an average 46.2 basis points more than similarly dated government bonds at 1519 GMT, unchanged on the day after grinding tighter in the morning.
"We came in this morning and there was a flurry of activity following the auto numbers out of the US, but after that it sort of died a death," said one trader.
"It was mainly dealers covering their short positions but there is generally a good tone to the market because equities are up again," the trader added.
General Motors, the world's biggest auto maker, reported on Friday surprisingly strong US vehicle sales for September, an annual rise of 20.5 percent. The news helped push its bond spreads tighter.
General Motors 8.375 bond due in July 2033 was about seven basis points tighter at 265 basis points over Bunds, the trader said, while Ford's 5.75 percent bond due in January 2009 was trading about two basis points tighter at 116 basis points over government securities.
France Telecom's 8.125 percent note due in 2033 was trading two to three basis points tighter at 1453 GMT at 103 basis points over government bonds, a trader said.