Ford and General Motors found favour in the European credit markets on Thursday, as investors bought their bonds on speculation the worst for the troubled car makers may be over.
General Motors' 8.375 percent euro bond due in July 2033 traded half a point higher at 76.75 percent of face value, a trader said, while Ford spreads were about 10 basis points tighter across the board ahead of US car sales reports for May due later in the day.
"People who got rid of Ford and GM are coming back, with investment grade accounts starting to put in bids," said a trader in London. "Most of the action is in the cash markets rather than default swaps."
Early retirement plans and a more innovative approach to car design have been credited in recent days with boosting investor sentiment toward GM, while Ford, which reported its biggest quarterly loss in more than four years last week, has taken similar steps. "There is a suspicion we may be past the worst and this could be time to come back in," the trader said.
Earlier, economic reports showed US business productivity was stronger than first thought in the first quarter and labour costs were much better contained, tempering inflation jitters in financial markets.
A second report showing an unexpected rise in initial claims for jobless benefits also helped ease worries a tight job market could drive up wages and fuel inflation. However, another report showed industrial costs jumped, as the Institute for Supply Management said its index of prices paid spiked to 77, from 71.5.
Concern over rising commodity prices and the implications for interest rates and global economic growth helped fuel a sell-off in equities in recent weeks, and a partial retracement in credit spreads from near record tight levels.
In recent sessions the sell-off has moderated, though investors remain sensitive to economic indicators. "We seemed to get away with what we have seen today, with indexes trading in a range," another trader said.
The cost of default protection on European telecommunications firms was little changed, with five-year credit default swaps on France Telecom holding steady bid at 35 basis points, according to HSBC data.
The iTraxx Crossover index, made up mainly of high-yield credits, was one basis point tighter by 1500 GMT at 260 basis points, after earlier tightening to 257 basis points. Deutsche Telekom's 10-year, 500 million euro bond, which it sold last night, weakened some 2 basis points, to be bid at 87 basis points over Bunds.
Manpower Inc, the world's second-biggest staffing company, sold a 200-million-euro ($257.5 million), 7-year fixed-rate bond on Thursday, the banks managing the sale said.
The bond was sold at 99.349 percent of face value, with a coupon of 4.75 percent, to yield 82 basis points over mid-swaps, tighter than initial guidance of around 85 basis points over mid-swaps.
Portuguese utility Energias de Portugal (EDP) has set spread guidance on its planned 3-part bond sale, which will be worth up to 1.5 billion euros ($1.93 billion) in total, a banker familiar with the deal said on Wednesday.
EDP will sell a 4-year floating rate note (FRN) yielding 18-20 basis points over Euribor, a 6-year fixed-rate bond with a spread in the area of 30 basis points over mid-swaps, and a 10-year fixed-rate bond with a spread of about 50 basis points over mid-swaps, the banker said. The deal is set to price on Friday.
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