Bonds of troubled US automaker General Motors Corp rallied in Europe on Monday in a thinly traded session after the company said it would sell most of its stake in Suzuki Motor Corp.
Elsewhere flows were thin despite a continued focus on merger and acquisition activity, with Germany's Linde agreeing to buy the UK's BOC Group for 8.2 billion pounds ($14.4 billion) and continued speculation over a possible leveraged buyout of British phone operator BT Group Plc.
The GM 7.25 percent bond due 2013 was up around 1 percentage point by 1530 GMT at 72.5 percent of face value, a trader in London said. "There's not a lot of trading, but there's a very strong tone to the market," he said. "It started with the short-covering rally after Dana filed for bankruptcy on Friday, then there was generally positive news over the weekend. "It's amazing how sentiment changes," he added.
The market moved to cover short positions after US auto and truck parts maker Dana Corp filed for bankruptcy late last week, and then was further buoyed by GM's plan to raise 2.4 billion by selling 17.4 percent of Suzuki back to the Japanese carmaker.
Furthermore, there are hopes that a board meeting on Monday may be a step forward in GM's proposed sale of a controlling stake in its finance unit, General Motors Acceptance Corp, analysts said. GM is trying to sell the stake in order to restore GMAC's investment-grade ratings. Elsewhere, the cost of insuring a default by BT rose for the second day to around 64 basis points, up 9 basis points on the day, a trader in London said, on continued speculation that the company might be a target for private equity firms.
"If there's any tangible news, it just drifts a little wider each time," a trader in London said.
BT shares were 4.88 percent higher by 1602 GMT at 231.25 pence after the Business Online reported that a consortium of private equity firms was considering a 25 billion pound bid.
Default swaps on Vodafone were little changed at 33 basis points, the trader said, after Verizon Communications said on Monday it was working to buy the UK group's 45 percent stake in the Verizon Wireless joint venture.
Vodafone said its position with regard to the venture had not changed. The company previously said it had no current plans to sell the stake, which it views as an important asset.
In the high-yield market, the iTraxx Crossover index continued to rally, a trader in London said, supported by higher stocks and by sentiment ahead of the roll to new contracts on March 20. The index was at 253 basis points by 1530 GMT, some 2 basis points less on the day.
"The roll is a very important element. We don't think any real bearish strength can surface before then, unless we've got some kind of external shock," said the trader. High-yield bond supply is also set to remain muted in the near future, lending further support to the market, he said.
In the wider market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 49.5 basis points more than similarly dated government bonds at 1615 GMT, 0.3 basis points wider on the day.
After a relatively quiet February in terms of deal numbers, the investment-grade corporate bond pipeline has cranked into life in recent days, with tobacco firm BAT and utility National Grid signing up to borrow on Monday.
BAT plans to sell a two-part euro- and sterling-denominated bond, split into a 500 million euro 8-1/2 year bond and a 300 million pound 10-1/2 year bond, a banker familiar with the sale said. Barclays Capital, Deutsche Bank, HSBC and RBS are managing the sale.
And gas and power network operator National Grid, which late in February announced plans to buy US-based Keyspan Corp for $7.3 billion, plans to issue a 7-year euro bond. ABN Amro, BBVA, HVB and Morgan Stanley will manage the sale, which represents routine refinancing.
Both Moody's Investors Service and Standard & Poor's have said they may cut National Grid's ratings by one notch due to the Keyspan deal.
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