Bonds: autos take European credit markets higher

Auto bonds led European credit markets higher on Friday, after a stronger-than-expected US jobs report fuelled expectations for faster economic growth in coming months. Bonds of General Motors led gains as investors welcomed a decision by rating agency Moody's Investors Service to assign a stable outlook after it downgraded the underperforming company on Thursday.
"All the focus is on autos because more jobs means stronger consumer spending," said a trader in London. "The rest of the market is grinding tighter but nothing spectacular."
Some 337,000 jobs were added to US payrolls in October, a government report showed, the biggest gain in seven months and twice the 169,000 Wall Street economists had forecast.
General Motors' 8.375 percent euro bond due in July 2033 was bid two basis points tighter after the data at 293 basis points over government debt, a trader said. Ford's 5.75 percent euro bond due in January 2009 were also bid two basis points tighter at 137 basis points.
"One thing about this rally, there hasn't been a single real money buyer. It's all brokers buying," said an auto trader in London.
Moody's cut General Motors late on Thursday by one notch to Baa2, but said the outlook was stable and that GM's performance would be consistent with that rating by late 2006. The agency said a key factor supporting the stable outlook was the company's strong liquidity.
In October, Standard & Poor's cut GM to BBB-, the last rung on the investment-grade ladder, and also assigned a stable outlook. Outside autos, trading was surprisingly subdued, given the rally in equities following the payroll number.
Telecommunications bonds were little changed on the day, a trader said, with the spread on France Telecom's 8.125 percent bond due in January 2033 widening around one basis point to 101 basis points over government bonds.
Still, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 48.7 basis points more than similarly dated government bonds at 1555 GMT, 0.7 basis points less on the day.