Credit spreads widen on concern over higher rates

European credit spreads widened on Thursday after European Central Bank President Jean-Claude Trichet warned inflation may accelerate, dampening demand for fixed-income securities.
European sovereign bonds, against which corporate debt is benchmarked, fell sharply after Trichet said the medium term outlook for price stability remained subject to upside risk, after the European Central Bank left its key rate on hold.
The benchmark 2-year German bund yield rose some 8 basis points to 4.51 percent, helping push the iTraxx Crossover index some 4 basis points wider to 236 basis points by 1400 GMT, a trader said.
"I don't know if it is the inflation comments or just that the market is in no mood to go tighter, but we are definitely weaker," said a trader in London. "Yesterday's tightening probably went a bit too far."
Among single names, the cost of insuring debt of Boot's rose as private equity buyer KKR met investors to negotiate loans for its 11.1 billion pound buyout of the health and beauty chain. Five-year credit default swaps on Boots were volatile, a trader said, trading 20 basis points wider at 295 basis points at 1400 GMT.
UK food retailer Sainsbury saw its cost of default protection fall on weakening expectations of a private equity bid for the company. In the absence of any firm news of a bid, following weeks of rumours, five-year swaps dropped 7 basis points to around 72 basis points, according to HSBC pricing. Earlier, the cost of insuring debt of British bookmaker Ladbrokes against default dropped as it said it had seen a big rise in telephone betting from high-spending customers in recent weeks.
Ladbrokes CDS tightened 5 basis points to 165 basis points, according to Deutsche Bank. In the primary market, privately held French retailer Auchan sold a 7-year benchmark eurobond, one of the banks managing the sale said on Thursday.
Final terms for the 650 million euro ($887 million) bond show it was priced at 99.85 percent of face value, with a coupon of 5.125 percent to yield mid-swaps plus 27 basis points, around the mid-point of initial guidance set earlier.
The spread equates to 52.3 basis points over the 4.25 percent July 2014 Bund. In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 44.7 basis points more than similarly-dated government bonds at 1430 GMT, 0.7 basis points less on the day.