Corporate bonds issued earlier in the week widened in Europe on Thursday as investors turned wary in a market weakened by a plethora of new issues and an uncertain macroeconomic backdrop. "The market is very much focused on what happens in yields. If treasury bonds stabilise we could go tighter," said one corporate bond trader in London. "We've had a bullish market for two years and if the dollar goes higher and (government bond) yields go higher, spreads could be affected," he added.
Europe's corporate bond market has throughout the past year brushed off worries about higher oil prices, mixed economic data and geopolitical jitters, but the past week's volatility in government bonds has brought such issues back in focus.
Oil prices hit an eight-month high last week, but US April oil futures dropped more than $1 to $53.75 per barrel on Thursday after a big rise in US crude oil inventories. The decline did not help the newcomers in the euro corporate bond markets.
Telecom Italia's 50-year bond sold on Tuesday was bid at 115 basis points over the French 50-year government bond, 8 basis points more than at launch and 3 basis points wider on the day, a trader said.
"The message is clear now, it will take a long time for the market to digest those TITIM 55 (Telecom Italia 2055 bonds) and a falling fixed income market will not help," BNP Paribas credit traders said in a research note.
French building materials group Lafarge SA braved the sour market on Thursday and sold a 500 million euro ($668.8 million) 15-year bond, setting a yield at the top end of initial guidance.
Lafarge, the world's biggest cement maker, priced its new issue to give a spread of 65 basis points over mid-swaps, the lead managers of the deal said, compared with a range of between 60 to 65 basis over announced on Wednesday.
The new issue traded slightly wider at 102 basis points over government debt at around 1540 GMT, a trader said. The issue price gave a spread of 101.4 basis points over the January 2015 Bund, said one of the lead managers of the deal.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 39.9 basis points more than similarly dated government bonds at 1601 GMT, 0.7 basis point more on the day.
Bonds of US auto makers, which have taken a beating this year, traded flat by around 1530 GMT, regaining ground mainly thanks to short-covering, a trader said.
General Motors, already hurt by weaker US sales and high inventories, on Thursday announced a "March Madness" sale, a new US incentive programme that includes an extra $1,000 cash rebate on most vehicles that have been in inventory for about 125 days.
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