European credit markets got a boost late on Friday after US consumer confidence unexpectedly rose in May, dampening concern over a slowdown in the world's largest economy.
The iTraxx Crossover index, comprising 50 mostly "junk"-rated credits, moved one basis point tighter to 198.5 basis points after the University of Michigan May consumer sentiment index rose to 88.7 in May from 87.1 in April. Economists polled by Reuters had expected a decline.
"Michigan pushed us tighter, though we were already a bit better on the day," said a trader in London. The index was three basis points tighter than Thursday's close at 1430 GMT, he said.
Crossover spreads earlier narrowed two basis points as the market recovered from "an extremely large" relative value trade in which an investor bought default protection on the Crossover and sold on the investment grade iTraxx Main index, the trader said.Elsewhere, the cost of default protection on EADS held steady, another trader said, after its shares rose more than three percent on French President Nicolas Sarkozy's words that he and German Chancellor Angela Merkel have found an agreement to solve problems at the defence and aerospace group. Sarkozy said France will one-day sell its 15-percent stake in EADS and has no intention of nationalising the company.
Earlier, the cost of insuring debt of British bookmaker Ladbrokes against default fell after the company's chief executive dismissed talk of a private equity bid. Five-year default swaps on Ladbrokes fell 10 basis points to 150 basis points, dealers in London said, having risen last week along with the company's share price on speculation over a bid from Apax [APAX.UL] at 440 pence a share.
Chief Executive Chris Bell dismissed the talk. "It's absolute rhubarb," he told Reuters in an interview on Friday. Five-year protection on DaimlerChrysler continued to track tighter as investors backed its sale of its Chrysler unit earlier in the week. The contracts traded one basis point tighter, a trader said, at 22 basis points. They were at 32 basis points at the beginning of the week.
Danish cleaning services company ISS on Friday formally tendered to buy back up to 350 million euros of its 4.5 percent notes due 2014, one of the banks managing the offer said.
ISS said earlier in May it might buy back the debt as part of a 1.74 billion euro debt refinancing. ISS will pay 93 percent of face value for the bonds, of which there are 500 million euros outstanding, if they are tendered before 1500 GMT on May 29, or 91.5 percent thereafter.
In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 42.2 basis points more than similarly-dated government bonds at 1430 GMT, 0.4 basis points less on the day.
The pipeline of corporate deals for next week is healthier than it has been for some time, with Swedish engineer Atlas Copco, Fiat holding company IFIL and Volvo Treasury among those lining up investment-grade bond issues.
Despite a deluge of issuance on Tuesday, with over 5 billion euros of corporate deals pricing in a single session, the market seems well placed to cope with an increase in supply, with investment-grade spreads at their lowest in over two years, according to Merrill Lynch data. Demand was strong for all of this week's corporate issues, and they were trading flat to higher by the end of the week, analysts at SG CIB said.
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