Telecommunications firms led European credit markets lower on Friday as concern over a possible take-over bid for Deutsche Telekom added to market worries over the outlook for spreads in coming months.
Deutsche Telekom's 7.5 percent bond due in 2033 traded as much as 8 basis point wider at 151 basis points over government bonds, before settling 2 basis points wider at 145 over, said a trader in London.
Private equity firm Blackstone is not preparing a take-over bid for Deutsche Telekom, sources familiar with the matter told Reuters on Friday, after a German magazine reported that it was.
Magazine WirtschaftsWoche, in a preview of a report to be published on Monday, said Blackstone wanted to raise some 60 billion euros ($76 billion) from investors to be able to make a take-over offer.
Blackstone, which earlier this year paid 2.7 billion euros for a 4.5 percent stake in Deutsche Telekom, declined to comment.
The spread on France Telecom's 8.125 percent bond due in January 2033, one of the most liquid in the sector, was about 2 basis points wider at 157 basis points over government bonds, the trader said.
"It's pretty whippy generally and then obviously we had the specific rumours on DT," said a trader in London. "This market needs good news for spreads to tighten."
Elsewhere, corporate hybrid bonds plummeted and a key high-yield index hit the widest level since its current series debuted in March.
Credit markets have remained largely insulated against recent declines in equities, sparked by speculation over faster inflation and rising interest rates in the US That outperformance has raised concerns in recent days that spreads may widen as the market catches the wider malaise.
The iTraxx Crossover index, containing mainly "junk"-rated credit default swaps, was about 12 basis points wider by 1430 GMT at 308 basis points, one trader said.
"There is nothing specific - equities have stabilised in the past week, but there are long-term worries about Europe in the coming year," he said.
Default rates among European corporate bond issuers are low, with only European default in the past year, but ratings agencies predict higher borrowing will lead to a jump in defaults in coming months. In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 54.9 basis points more than similarly-dated government bonds at 1430 GMT, 0.6 basis points more on the day and the highest level since last June.
Corporate hybrid bonds, riskier bonds that took off last year and blend features of debt and equity, continued a recent slump, traders said.
Bayer's hybrid widened 22 basis points, bid at 330 basis points over Bunds.
Dutch insurer Aegon NV plans to issue a euro fixed-rate perpetual bond, the banks managing the sale said on Friday.
ABN Amro is co-ordinating the transaction and is joined by ING Wholesale Banking and Rabobank as joint bookrunners. Millipore Corp, a Massachusetts-based biosciences company, on Friday sold a 250 million euro ($314.6 million) 10-year bond, the banks managing the sale said.
The bond was priced at 99.611 with a coupon of 5.875 percent, Bank of America and UBS said. That gives a spread of 200 basis points over the 3.5 percent German government Bund due January 2016, an official at one of the banks said, in line with guidance issued on Thursday.
The proceeds from the bond will be used to help refinance Millipore's acquisition of Serologicals Corp for $1.4 billion in cash. The bond falls into the crossover category, holding an investment-grade BBB- rating from Standard & Poor's but rated Ba2, two notches below investment grade, by Moody's Investors Service.
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