Corporate bond spreads tighten

European corporate bonds spreads tightened on Friday amid improving sentiment and hopes the financial market volatility of recent days had abated.
Amid subdued trading, followings Thursday holiday across much of the continent, the cost of default protection on Arcelor rose as the steel giant set out to acquire Russia's Severstal in a move seen as blocking a take-over bid from rival Mittal.
Five-year credit default swaps on Arcelor rose as much as 10 basis points, before falling to be bid at 59 basis points, about 4 basis points wider on the day, said a trader. That means it costs 59,000 euros a year to insure 10 million euros of Arcelor's debt against default.
"Arcelor is wider but generally it's been a quiet session for single names," the trader said. "That doesn't mean we are through the current volatility."
Credit markets have fallen alongside equities as spreads at multi-year lows and rising concern over commodity prices and interest rates dampened demand for riskier investments.
The iTraxx Crossover index, a benchmark for the riskier high-yield credit market, tightened around 13 basis points on Friday to 253 basis points, after touching 275 basis points earlier this week. The HiVol index of riskier credits was 2.5 basis points tighter at 54.5 basis points.
Elsewhere, debt of France Telecom was little changed after Standard & Poor's cut its outlook on the company to stable from positive on Friday, citing operating and financial pressures.
S&P said the revision reflected the lower probability of a one-notch upgrade, which would depend on France Telecom maintaining its strong business profile and achieving and maintaining its leverage target.
"The process of combining such financial risk profiles could be derailed between now and the end of 2008," it said.
Europe's large telecoms operators have spent the past few years repairing balance sheets strained by mergers and acquisitions and multi-billion euro payments for third-generation mobile phone licenses.
The private equity group that is set to buy out information provider VNU NV offered on Friday to buy back most of the firm's outstanding bonds and notes, worth about 1 billion euros in total. The offer covers notes in euros, Dutch guilder, and dollars.
However, Valcon did not say it would buy back its 5.625 percent 250 million pound sterling resettable debenture loan, which can be put at par in May 2010.
"I think it will move wider from here," said a trader. "The main fear with VNU is the lack of deliverables. They're buying back most of the debt but there is still the 2010 bond outstanding."
Valcon, a buyout vehicle that includes Kohlberg Kravis Roberts & Co and Carlyle Group, is set to take over the world's biggest market research company for 7.6 billion euros ($9.70 billion). The cost of insuring VNU's debt against default was little changed on the day at 185 basis points, the trader said.