Corporate bonds pare losses

European corporate bonds pared earlier losses late on Thursday as some investors sought out bargains after explosions blamed on terrorists that shook central London. "We are starting to recover, though are still down on the day," said a trader in London. "There's a lot of worry and speculation over what may happen next."
The iTraxx crossover index of credit default swaps, a proxy for the most liquid and volatile bonds, traded about 15 basis points wider at 1430 GMT at 309 basis points, after earlier rising 50 basis points to 345 basis points.
Traders reported that early frenetic trading of credit default swaps indexes had quietened in the afternoon, though most City people had remained at their desks.
"We have seen some opportunistic buying - mainly on the indexes," said one trader. "People have not gone home - they are hanging around to see how the transport situation develops."
The iTraxx Europe index, containing most of Europe's biggest borrowers, traded as wide as 45 basis points, then narrowed to around 42 basis points, three basis points wider on the day.
In the cash market, the few bonds that traded quickly retreated from earlier wides as investors unwound short positions and some 'real money' accounts bought at the cheaper levels, one London trader said.
"The market's bounced back very hard - as fast as we went out, I'd say we've had a 90 percent retracement," the trader said.
Recently issued hybrid subordinated bonds from Danish Oil and Natural Gas (DONG) and Swedish power utility Vatenfall [VATN.UL] were amongst the worst hit early in the day as speculators sold their positions, the trader added.
Both issues widened about 20 basis points, before tightening back in to trade 5-8 basis points wider, with DONG's ultra-long bond bid at 215 basis points over government debt and Vattenfall's perpetual bid at 179 basis points over government debt.
In the telecommunications sector, five-year credit default swaps on Germany's Deutsche Telekom traded two basis points wider bid at 36 basis points, a trader said.
That means its costs 36,000 euros to insure 10 million euros of the company's debt against default.
Four blasts ripped through London during rush hour on Thursday morning, killing dozens and disrupting a summit of Group of Eight leaders in Scotland in attacks Prime Minister Tony Blair called "barbaric".
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 38.5 basis points more than similarly dated government bonds at 1427 GMT, 0.1 basis points more on the day.
In the primary market, French holding company Wendel Investissement put a planned 12-year euro bond sale on hold, a banker familiar with the deal said.
"The transaction has been put on hold until further notice, for obvious reasons," the banker said, adding that the mood inside the bank was one of "shock".