Corporate bonds gain further ground

European corporate bonds gained further ground on Thursday as a welter of results and positive rating news lent further support to a market where spreads were already trading at record tight levels. Even where results proved disappointing, as in the case of auto-maker DaimlerChrysler, any spread widening proved temporary, with slightly cheaper levels attracting buyers.
Swedish telecom equipment maker Ericsson, German steelmaker Thyssenkrupp and French phone operator France Telecom all gained thanks to ratings news.
"With DaimlerChrysler, we widened four basis points, and then we saw sellers of protection and bond buyers step right back in," said one trader. "It's reversed all of its losses."
The auto-maker reported fourth-quarter results far short of expectations, hit by a collapse in profits at the Mercedes Car Group luxury division, with operating profits at 785 million euros versus an average forecast of 1.43 billion in a Reuters poll of analysts.
But five-year default swaps on DaimlerChrysler were at 57 basis points by 1530 GMT on Thursday, unchanged on the day.
Default swaps on Ericsson rallied seven basis points to 52 basis points, a trader said, as the company's chief financial officer said he hoped the company's credit rating would return to investment grade at the end of the year.
France Telecom too gained as Standard & Poor's lifted its rating to A- from BBB+ and retained a positive outlook. Five-year default swaps were two basis points tighter at 32 basis points.
The cost of credit protection on Thyssenkrupp fell, and its bonds gained, after the German industrial group saw its credit ratings upgraded by S&P and Fitch Ratings.
Five-year credit default swaps traded seven basis points tighter to be bid at 44 basis points, a trader said. That means it costs an annual 44,000 euros to insure 10 million euros of the company's debt. Thyssenkrupp's benchmark bond spreads tightened a similar amount, he said.
Standard & Poor's upgraded the debt ratings to BBB-, the lowest investment-grade, from BB+, the highest junk rating. It cited the group's announcement that it had sold real estate assets for 2.1 billion euros ($2.69 billion) and used the proceeds in part to pay down debt.
Upgrades to investment-grade status can dramatically lower a company's borrowing costs. The German industrial group's financial profile has improved and the company has a commitment to keep borrowings low, S&P said.
A few minutes later, Fitch also upgraded the company, moving it to BBB+, from BBB. It also credited the sale of the real estate unit.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 42.3 basis points more than similarly dated government bonds at 1615 GMT, unchanged on the day.
The Republic of Portugal plans to issue a 15-year syndicated government bond, lead managers Banco Espirito Santo, BNP Paribas, Calyon, Deutsche Bank and Morgan Stanley said on Thursday.
A banker familiar with the sale said the bond would be launched next week.
Later in the session Greece added its name to the list of borrowers, with plans for a 5.0 billion euro 10-year bond due 2015, via Alpha Bank, EFG Eurobank, HSBC, Lehman Brothers and Merrill Lynch.