Bonds: Crossover tightens

The iTraxx Crossover index tightened on Monday, ahead of Tuesday's roll to a new maturity, traders said, with sentiment buoyed by stronger stocks. The iTraxx indexes move to the new series 7 six-month contracts, with the Crossover expanding from 45 to 50 credits in the process.
The Crossover index, made up mainly of high-yield credits, tightened 4 basis points to 214.5 basis points, a trader said.
He said the market was quiet, eyeing not only the index roll, but also the US Federal Reserve meetings on Tuesday and Wednesday.
The Federal Reserve will mull the course of US interest rates, and the meeting will be followed by an announcement on monetary policy and a statement on the economic outlook.
"It's dead. Everyone's looking out for the roll tomorrow, and the FOMC meetings coming up - and of course stocks are stronger," the trader said.
US stocks rose on Monday as a flurry of take-over news fuelled a recovery in global equities, easing investor concerns about risk. The cost of insuring the debt of Germany's TUI AG against a default fell, after the company unveiled a tie-up of its tourism unit with Britain's First Choice.
The deal, to boost TUI's position as Europe's biggest travel firm, was announced just weeks after rivals Thomas Cook and MyTravel announced plans to merge. Five-year credit default swaps on TUI tightened 15 basis points to 220 basis points, a trader in Germany said.
"This merger story has been priced in ever since Thomas Cook bought MyTravel," he said. He said TUI's credit default swaps, which widened on Friday afternoon, reversed course after the deal was confirmed.
Royal Bank of Scotland analysts said they saw the merger as a "positive strategic step in dealing with TUI's problematic tourism business."
But, they said, the exact implications for TUI bondholders remained uncertain at this stage, adding: "Though we suspect the near term impact to be negative given the uncertainty over TUI's access to the cash flows of the new business."
In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 47.3 basis points more than similarly-dated government bonds at 1537 GMT, 0.2 basis points more on the day.
In the primary market, Britain's WPP, the world's second-largest advertising and marketing company, plans to sell a 10-year, sterling-denominated bond, an official at one of the banks managing the sale said. The benchmark-sized bond will be sold after roadshows in Scotland on Thursday and London on Friday.