European credit markets held steady on Tuesday as signs of strong economic growth in the 12 nation euro region and robust earnings offset disappointing third-quarter results from Swiss bank UBS.
Five-year credit default swaps on UBS, the world's largest wealth manager, were little changed after it reported a worse-than-expected 21 percent fall in third-quarter net profit, after betting wrong on US interest rates.
The cost of default protection on UBS subordinated debt was unchanged at 6.5 basis points in mid-afternoon trade, even after the bank's share price fell more than 5 percent.
"The results were bad but the credit markets are not that worried," said a trader in London. "Generally, we have stabilised at these levels." UBS said trading revenues in bonds and equities fell by 25 percent from the second quarter.
In the telecoms sector, investors appeared unimpressed by a 4 percent rise in third-quarter profit at Denmark's TDC and better-than-expected earnings at TeliaSonera, the largest Nordic telecoms firm.
The cost of default protection on both was little changed on the day, with TeliaSonera five-year default swaps at 43.5 basis points, a telecoms trader said.
In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average of 50.3 basis points more than similarly dated government bonds at 1530 GMT, down 0.8 basis points. The iTraxx Crossover index was 3 basis points tighter at 1530 GMT at 248.5 basis points, according to Deutsche Bank.
Index spreads have been pushed tighter in recent sessions after a surge in issuance of products such as collateralised debt obligations, in which investors take leveraged or bespoke exposure to portfolios of assets. Arrangers use the indexes to hedge exposure to the structures.
Economic reports have also given credit a boost, with the latest figures on Tuesday showing French unemployment at a five-year low, euro zone inflation slowing and economic confidence on the rise.
The European Commission said estimated consumer price inflation eased to 1.6 percent from September's 1.7 percent, while analysts polled by Reuters had expected an unchanged reading. The figure was below the European Central Bank's tolerance level of 2 percent.
France's Saint-Gobain trimmed spreads on its two-part benchmark sterling bond sale, two officials at banks managing the sale said on Tuesday, in what is usually a signal of good investor demand.
Saint-Gobain, the world's biggest building materials supplier, will issue a 10-year sterling bond, priced to yield 100 to 105 basis points over the 2015 UK government gilt, and an 18-year sterling bond yielding 125 to 130 basis points over the 2025 gilt, the officials said.
Spanish gaming company Codere on Tuesday priced a slightly larger-than-expected 160 million euro ($203 million) increase to its 8.25 percent euro bond due 2015, a banking source said. The increase, originally expected to be 150 million euros, was priced at 107.25 percent of face value, the source said, in line with guidance.
Dutch telecoms group KPN offered to buy back up to 750 million euros of its November 2008 bonds, funded by issuing longer-dated bonds, to lengthen its debt maturity profile.
KPN said it would issue a new, benchmark-sized - or 500 million euro-plus - bond, whose pricing and settlement would be simultaneous with the tender. Imperial Tobacco, the world's fourth-biggest cigarette firm, said on Tuesday it planned to sell $1.1 billion or more of euro and sterling bonds and will price and size the issues after investor meetings next week.
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