European corporate bonds steady

European corporate bonds held steady on Friday amid subdued trading as the holiday period drew to a close and investors looked to prospects for the coming weeks. Speculation over new supply in September focused on so-called hybrid deals, the fashionable new security that combines elements of bonds and equities. Trading in the secondary market was sedate on Friday, with few prices showing on traders screens ahead of a UK holiday on Monday.
"Its absolutely dead," said one trader. "We are coming to the end of the holiday period but a lot of people have got away early for the long weekend."
Five-year credit default swaps on General Motors, among the most liquid securities in the European markets, traded little changed on Friday bid at 410 basis points, the trader said.
The company was little changed on the week after Moody's Investors Service downgraded its auto and financing operations to "junk" status.
Rival Ford also emerged unscathed from a Moody's downgrade of its auto operations, with five-year default swaps virtually unchanged on the week at 390 basis points. Moody's left Ford's financing operation at investment grade.
Elsewhere, hybrid bonds closed out the week lower, as investors speculated over a rumoured wave of issuance in September, when conventional issuance is also normally expected to pick up.
German drugs and chemical group Bayer's 1.3 billion euro hybrid ended the week about six basis points wider, while Suedzucker's 5.25 percent hybrid closed 10 basis points wider, as investors repositioned for the new supply, analysts said.
"Investors are a bit nervous," said Suki Mann, a strategist at Societe Generale.
Details of any new issuance have yet to emerge but the utility, telephone and industrial sectors are prime candidates, analysts say. Bankers forecast that issuance of the innovative bonds could reach 5 billion euros in coming weeks.
Hybrids are usually very long-dated securities that are callable after a certain number of years. They pay higher coupons, so appeal to investors in a tight spread environment, but are subordinated to other assets, including existing bonds.
Hybrids became more popular this year after ratings agencies clarified their impact on corporate balance sheets. They generally contain an equity element, reducing ratings pressure on the issuer.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 37.4 basis points more than similarly dated government bonds at 1500 GMT, unchanged on the day.
Chemical company Rohm and Haas Co plans to sell a seven-year euro bond at 53-63 basis points over swaps, said the bank managing the deal on Friday.
The sale, part of an exchange deal announced on August 23, is being led by Citigroup.
The company is offering to exchange its existing 400 million euros of 6 percent notes due March 2007 for the new seven-year security.
The exchange offer will expire on Monday September 12, with settlement a week later.