European corporate bonds rose in value as General Motors Corp reported better-than-expected results, although as the day wore on price gains started to fade, traders said.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 57.2 basis points more than similarly dated government bonds at around 1612 GMT, 0.3 basis points less on the day.
"It looks a bit better today," said one corporate bond trader. "We have seen good hedge fund buying, and Ford looks like it is flavour of the month - we saw its spreads around five basis points tighter."
General Motors on Tuesday posted a better-than-expected quarterly profit on record earnings from its finance operations and said the earnings outlook for the first quarter of 2004 was above Wall Street estimates.
Fourth-quarter net earnings were $1.01 billion, or $2.13 per share. Chief Executive Rick Wagoner said the auto-maker expects to increase its US market share in 2004.
"GM numbers were great - better than expected - but the bonds are only about two to three (basis points) tighter," said the trader.
Analysts at Dresdner Kleinwort Wasserstein said in a note they expected GM's credit ratings to remain stable, and continued to recommend an overweight position on the company's bonds.
Another trader said that after initial spread tightening, momentum was fading. In the telecom sector, bond values rose early in the session and in the aftermath of the GM numbers, but by mid-afternoon were little changed.
Freddie Mac, the No.2 buyer of US mortgages, is set to price a four billion euro 10-year bond on Wednesday at a tighter spread than initially expected.
A banker at one of the lead managers said that price guidance for the issue had been revised to 19 basis points over swaps from 20 basis points, while the size of the issue has been increased from 3.5 billion euros.
ABN AMRO, Credit Suisse First Boston, Dresdner Kleinwort Wasserstein and Morgan Stanley are managing the sale, originally scheduled for launch in September 2003 but delayed following the agency's restatement of results.