Profit-taking ended this week's two-day spread rally of euro auto-maker bonds on Thursday, as investors began showing nervousness about the US automobile industry again. Car bonds have been on an upswing in Europe since Tuesday, after investment bank Lehman Brothers changed bond index rules which would give investors some flexibility should General Motors, the world's largest car maker, lose one of its current investment grade credit ratings. "When people couldn't sell any more GM, they began to sell the Ford," said a bond trader in London.
General Motors' 8.375 percent euro bond due in July 2033 was bid 15 basis points wider at 385 basis points more than government debt.
Rival Ford's 5.75 percent euro bond due in January 2009 was also bid 15 basis points wider at 191 basis points more than government debt, while its 4.875 percent bond due 2010 was seven basis points wider at 205 basis points over.
Among better performing names, German auto group Volkswagen's bonds were around five basis points tighter across the curve, partially thanks to the structuring of collateralised debt obligations (CDOs).
CDOs parcel together exposure to a basket of debt via the credit derivatives, bond or loan markets. 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 or sell protection to balance their books, pushing spreads tighter.
Elsewhere in secondary trade, telecoms bonds were off the tights seen in the morning, trading in low volumes in mainly street-driven transactions, said one trader.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 45.2 basis points more than similarly dated government bonds at 1601 GMT, 1.1 basis points less on the day.
Later on Thursday, German cable company Kabel BW is expected to price the 170 million euro floating-rate note it is issuing as part of a wider refinancing to replace existing debt, a banker familiar with the deal said.
The 10-year note will be priced to give a spread of between 735-760 basis points over 3-month Euribor, the banker said, giving an implied initial coupon of 9.5-9.75 percent.
Kabel BW, the third largest German cable company, is owned by private equity firm Blackstone Group International and Caisse de Depot et Placement de Quebec.
Credit rating agency Standard & Poor's assigned a B long-term corporate credit rating to Kabel BW, five notches below investment grade, and a CCC+ rating to the proposed bonds, which will be issued through Kabel BW Holdings GmbH.
Elsewhere in the primary market, Anglian Water Services, the water company of AWG Plc, sold a 250 million pound bond due in 2015 on Thursday, lead managers for the deal said.
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