European corporate bonds were little changed on Thursday amid subdued trading as investors awaited a key US jobs report on Friday that may give clues on prospects for global economic growth. A small explosion outside the British consular building in New York added to market nerves, traders said, although there were no injuries and auto bonds bucked the trend - continuing the rally started on Wednesday. "We opened slightly tighter but after the explosion the bids went out of the market," said a trader in London. "It's pretty much one of the quietest days of year so far."
The world's largest economy probably added 170,000 jobs in April, according to economists surveyed by Reuters, compared with a 110,000 rise in March. Investors are looking for clues on the future prospects after recent data showing growth is stuttering while inflation picks up. The report is due at 1230 GMT on Friday.
The US Federal Reserve this week lifted its key lending rate for the eighth successive month to 3 percent. Higher interest rates hurt bonds because they erode the value of their fixed returns.
Auto bonds continued an impressive rally begun on Wednesday after billionaire Kirk Kerkorian offered to more than double his stake in struggling auto maker General Motors Corp.
"It's a technical rally but the negative news flow has abated for a couple of weeks and the market is using it as an excuse to try and cover short positions, of which there's a lot," said one trader.
"But in the longer-term we still haven't seen the wides yet, it's still going to go to junk."
GM bonds had been in a tailspin since March when the auto maker warned profits this year may be 80 percent below earlier forecasts.
The company's 8.375 percent euro bond due in July 2033 was around 30 basis points tighter on the day at 670 basis points over government bonds.
Its euro bond due in 2013, which underperformed during the recent sell-off, was around 130 basis points tighter versus Wednesday morning.
Ford debt was also given a boost by the news, with its euro-denominated bonds around 20 basis points tighter on Thursday. But short-dated auto paper was the strongest performer with GM's 2006 bonds 280 basis points tighter since Wednesday morning and Ford's short-dated bonds around 80 basis points tighter.
European industrial credits were largely unchanged on Thursday, traders said, with benchmark spreads in the sector hovering near their recent wide levels.
Finmeccanica's 5.75 percent bond due in December 2018 was little changed in afternoon trade bid at 128 basis points over government bonds, a trader said.
Investors continued to focus on possible candidates for leveraged buyouts, he said, with firms such as Kingfisher attracting attention after weekend press reports linked the home improvement retailer with private equity firm Permira. Leveraged buyouts often leave the target company loaded with debt to fund the purchase.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 67.3 basis points more than similarly-dated government bonds at 1450 GMT, 1 basis point less on the day.
Comments
Comments are closed.