New issues dominated European bond markets on Tuesday, with Greece and Hungary selling sovereign deals of five and one billion euros respectively, while Portugal launched a three billion euro issue. On the corporate side Air Products sold a 300 million euro bond, while a pay-in-kind note from Italy's Avio is expected later in the day. The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 40.5 basis points more than similarly dated government bonds at 1604 GMT, 0.4 basis points less on the day.
In the secondary market, widely held euro bonds of US car giants were about five basis points wider on the day, still stinging after a weak credit rating outlook for the world's largest automaker GM.
"The market just feels heavy. We were doing well until Moody's came out with their negative outlook on GM Monday," said a bond trader in London.
General Motors' 8.375 percent euro bond due in July 2033 was bid at 497 basis points more than government debt.
Its rival Ford Motor Co's 4.875 percent bond due in January 2010 also widened five basis points in sympathy to 190 basis points more than government bonds. Sovereign issuers dominated the primary market on Tuesday.
Greece sold a five billion euro 10-year government bond at a spread of 19 basis points over German government bonds, in line with expectations, the banks managing the sale said.
The bond was priced at 100.006 with a coupon of 3.70 percent, lead managers Alpha Bank, EFG Eurobank, HSBC, Lehman Brothers and Merrill Lynch said.
Greece is rated A1 by Moody's Investors Service and A by both Standard & Poor's and Fitch Ratings. Hungary also sold a one billion euro-denominated 15-year Eurobond, its longest dated debt to date, with a re-offer price of 99.152, a source at one of the lead managers said.
The bonds carry a coupon of 3.875 percent and a spread of 12 basis points over midswaps.
Hungary is rated A1 by Moody's Investors Service and A- by Standard & Poor's and Fitch Ratings.
Meanwhile, Portugal launched a three billion euro bond due April 2021. The bond will be priced on Wednesday, Banco Espirito Santo, BNP Paribas, Calyon, Deutsche Bank and Morgan Stanley said.
Earlier, a banker familiar with the sale said the bond would be priced to give a spread of swaps minus three to minus two basis points. He said demand early on Tuesday stood at 5.5 billion euros. Portugal is rated Aa2 by Moody's Investors Service and AA by both Standard & Poor's and Fitch Ratings.
In the corporate sector, Air Products, which supplies gas to manufacturers and the health-care industry, priced a 300 million euro 10-year bond. The terms were in line with expectations, offering a yield of 34 basis points over swaps.
In the high-yield market, Italian aerospace company Avio is working on a 350 million euro 10-year pay-in-kind note, the latest in a string of deals whereby equity sponsors are pulling cash out of companies.
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