Credit markets edge tighter

European credit markets edged tighter on Friday, continuing a month-long rally after US jobs data showed an unexpectedly robust labour market, but trading was subdued, traders said.
In the high-yield market, credit default swaps on German broadcaster ProSiebenSat.1 rallied as Italy's Mediaset said it was considering a bid for the company, while bonds of Italian engine casting maker Teksid Aluminium gained on news of a tender offer for the debt.
The iTraxx Crossover index, made up mainly of "junk"-rated credits, moved 4 basis points tighter to 239.5 basis points after the US unemployment rate dropped to a 5-1/2 year low. The news was double-edged for corporate bonds, as it suggested that companies were in good shape but led financial markets to slash bets on US interest-rate cuts. The reaction was muted in Europe, with little activity throughout the day, traders said.
"We've shrugged off the US data again," said one trader in London. "It's unbelievably quiet." In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 50.4 basis points more than similarly dated government bonds at 1525 GMT, 0.4 basis point less on the day.
Credit markets have gained sharply in recent sessions as a decent crop of company results combined with a huge appetite for structured credit products to push spreads tighter. That is alarming some. Morgan Stanley's credit strategists on Friday recommended that investors take an "aggressively bearish" stance on corporate debt as credit indexes entered uncharted territory.
Five-year default swaps on ProSiebenSat.1 fell 17.5 basis points to 147.5 basis points on a mid-price basis, according to data from HVB, after Mediaset said it was considering a multi-billion-euro bid for the company. The deal would be a major push abroad for Italy's biggest private broadcaster, owned by former Prime Minister Silvio Berlusconi.
Italy's Teksid Aluminium said it would tender for its 11.375 percent euro bonds due 2011, pushing their price up sharply on Friday, after it agreed to sell assets to Mexican automotive supplier Tenedora Nemak SA de CV. Teksid, which makes aluminium engine castings, said late on Thursday it had agreed to sell most operations in North America, and operations and interests in South America, China and Poland, for $496.8 million in cash plus a synthetic equity interest in Nemak.
Teksid said as a result it intended to tender for the 240 million euros of bonds at a price of 95 percent of face value, excluding early consent fees, a price that it said was "a significant premium to their normalised trading price during the pre-announcement period".
The bonds were quoted bid at around 100.5 to 101 percent of face value on Friday morning, traders said, up from around 95 to 96 percent on Thursday. They were volatile in October as speculation built over whether the company would sell assets to cut debt.The market also got its first glimpse of the next jumbo "junk" bond deal set to hit the market, in the shape of $5.95 billion of bonds that will back the acquisition of Freescale Semiconductor Inc by the Blackstone Group.
The deal will be split into $4.35 billion of senior notes and $1.6 billion of senior subordinated notes, Freescale said in a statement. The issue will be via Firestone Acquisition Corp.