Bonds: General Motors results in focus

Better than expected fourth quarter earnings from General Motors Corp on Wednesday left its euro bonds broadly unchanged on the day as an initial rally faded as the market looked beyond the headline figures. In the high-yield market, French chemicals company Rhodia's bonds gained thanks to an upgraded profit forecast, while Sweden's Concordia Bus saw its credit rating cut further by Standard & Poor's.
GM said earnings per share excluding one-time items were $1.01 a share, ahead of Wall Street expectations of 92 cents, but warned it may only break even in the first quarter. Net earnings fell 37 percent due to growing US health-care costs and bigger losses from its European automotive operations.
"Initially, the headline figures were quite decent. Then people looked a bit deeper," said one auto trader in London.
The company's 8.375 percent euro bond due 2033 tightened some 15 basis points to a spread of 405 basis points over Bunds immediately after the results, then widened again to 420 basis points over, unchanged on the day.
"Now the market's just taking another slide...It's all pretty nervous," the trader said.
GM's credit rating from S&P stands at BBB-, the very lowest in the investment grade category. The agency said last week it would decide by mid-year whether its stable outlook on the rating was appropriate. A shift to a negative outlook could presage a drop to "junk" status.
Elsewhere, trade was thin, with traders in other sectors eyeing the action in GM's spreads. Industrials were largely unchanged, as were telecoms bonds, traders said.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 47.4 basis points more than similarly dated government bonds at 1627 GMT, unchanged on the day.
In the high-yield market, Rhodia's bonds edged higher after it said it expects 2004 operating profit before exceptionals to just beat its forecast of 420-425 million euros thanks to a good performance in the last quarter. The company also forecast consolidated net debt had dropped below 2 billion euros at the end of 2004.
Rhodia's 10.5 percent euro-denominated bond due in 2010 was around a point and a half stronger at 114.75 percent of face value, a trader said.
Triple-A rated German state development agency KfW sold a 4.0 billion euro 10-year bond that was increased from the initial 3.0 billion euro size on good demand. KfW Treasurer Frank Czichowski said demand was 6.3 billion euros.