Bonds of Germany's Cognis rose on Tuesday after the company said its owners would decide this year whether to list its shares or sell the specialty chemicals firm, potentially cutting its debt.
Five-year default swaps on Cognis were indicated around 210 basis points by 1415 GMT, a trader in London said, about 50 basis points lower on the day and 200 tighter in the past week.
The company's pay-in-kind notes due January 2015 rose 1.5 percentage points to 103 percent of face value, the trader said.
Cognis said in a statement it would review all strategic options amid currently favourable economic conditions. A spokeswoman added that the options included a possible initial public offering (IPO) and a sale.
Spreads were once again tighter across the board, with investors preferring to sell credit protection rather than buy cash bonds, reflecting a trend of recent months.
An index trader said the iTraxx Crossover index, a barometer for the high-yield market, fell as much as 4 basis points and ended the day 2 basis points tighter at 246 basis points. On March 20, it was at 300 basis points.
"There is really no reason for this except to say that it's going to continue until something major happens to reverse the trend," said the trader.
In the retail sector, default swaps on France's Casino added to recent declines, closing bid 3 basis points tighter at 67 basis points, while Germany's biggest retailer Metro was 1 basis point tighter at 35 basis points, another trader said.
Still, the index moved off its tightest spread in afternoon trade as chemical firms saw some protection buying, led by British petrochemicals firm Ineos, the index trader said.
Five-year default swaps on Ineos traded 10 basis points wider at 412 basis points.
"There's a bit of a weaker feel in that sector, but it's against a very strong background," he said.
Traders have cited factors from short-covering to hedging of structured products to relief over failed leveraged buyout bids to explain the strength of interest in selling credit protection, but no one theory had more support than the others, and in the cash bond market institutions have paper for sale.
The credit protection cost of General Motors Acceptance Corp rose on Tuesday, as investors speculated about the implications of the sale of the company, General Motors Corp's finance unit, to a hedge fund-led consortium.
Five-year default swaps on GMAC rose 30 basis points to 337 basis points, meaning it costs 337,000 euros to insure 10 million euros of GMAC debt against default.
GM, one of the world's largest corporate borrowers, agreed to sell a 51 percent stake of its profitable GMAC unit to a consortium led by Cerberus Capital Management on Monday.
Reactions from the credit rating agencies were mixed. Both Moody's Investors Service and Fitch Ratings warned that GMAC's ongoing links to GM could hamper its attempts to shed a "junk" credit rating.
Standard & Poor's said it was likely to raise its rating on GMAC one notch to BB+, the highest sub-investment grade rating.
In the primary market, Swiss recruitment firm Adecco and privately held agribusiness giant Cargill Inc continued investor roadshows for planned benchmark-sized euro bonds. Both roadshows end on Thursday, according to bankers familiar with each deal.
Network Rail, which owns Britain's rail infrastructure, plans to increase the 250 million pound ($436 million) bond due 2011 it sold earlier this year, an official at one of the banks managing the deal said.
The high-yield primary market looked set to leap to life after a fallow period.
Deals for Kronos International, a subsidiary of US titanium dioxide pigment maker Kronos Worldwide, and German magnetic materials maker Vacuumschmelze are set to be priced this week, along with a pay-in-kind note for Greek mobile phone operator TIM Hellas that will pay its private equity sponsors a dividend.
"We didn't have many deals in the first quarter, and spreads have come in, so it's probably ideal conditions for issuance," a high-yield trader said.
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