Crossover index four basis points tighter

European credit spreads ground tighter on Thursday in anticipation that jobs data on Friday will reassure on the health of the US economy, while the cost of insuring HeidelbergCement's debt against default also fell.
Germany's HeidelbergCement said it plans to issue a euro bond this month in a private placement to help reduce existing debt. The bond, which will be below the 500-million euro benchmark size, will mature on January 4 2018 and will have a coupon of 5.625 percent.
The cost of insuring HeidelbergCement's debt against default initially rose on expectations that the new issue would be priced cheaply and put pressure on its credit default swaps. But its five-year CDS then retraced and was 6 basis points tighter at 94 basis points by 1450 GMT, a trader said.
"People have seen that it is offering a decent yield and will be privately placed which is unlikely to have a big impact on its CDS," the trader said. Credit spreads also narrowed in the broader market, with the market's attention focused on US non-farm payrolls figures on Friday after the European Central Bank and Bank of England each left interest rates on hold, as expected, on Thursday.
The iTraxx Crossover index, a closely watched barometer of European credit risk made up of 50 mostly "junk"-rated credits, was 4 basis points tighter at 306 basis points by 1450 GMT, the trader said. "Equities have been trending slightly higher and we're slightly tighter on credit but not with real conviction. I think the market will take its direction from payrolls on Friday," said Mehernosh Engineer, a credit strategist at BNP Paribas.
Any increase in the US unemployment rate above the 4.7 percent consensus forecast may also turn sentiment. "If it goes to 4.8 percent, the market will be really worried that we are sliding into a recession-type scenario," said Engineer. "The big question is how bad things get to determine whether Bernanke cuts by 25 or 50 basis points at the Fed's next meeting."
Figures out on Thursday showed weekly jobless claims came in only slightly above expectations, easing investors' fears about the spillover effects of the credit crisis on the economy. Non-farm payrolls for September are seen rising solid but unspectacular 94,000 jobs, rebounding from the first drop in monthly hiring in four years during August.