European corporate bonds clawed back some of Monday's losses as equity markets around the world lent support, with autos leading the recovery, traders said.
In the primary market, German retailer Metro is set to offer investors a lower-than-expected premium on its planned bond sale, a sign of good demand.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 56.9 basis points more than similarly dated government bonds at 1505 GMT, 0.3 basis point less on the day.
"We opened up five to seven basis points tighter and have basically stayed that way," said one auto bond trader. "Autos have taken most of the heat recently and they are leading the fight back."
General Motors 8.375 percent euro bond due in June 2033 was about six basis points tighter at 1412 GMT at 270 basis points over Bunds, he said.
Telecoms, the other highly liquid sector in the European bond market, also benefited.
"We've had a little bit more of a positive day today," said one trader.
"The equity market rally pushed us tighter this morning, but that move died before lunch and we've been stuck around the same level ever since. But there are definitely better bids for cash and better offers for credit default swaps," he said.
In the high-yield market, which has been under pressure for the last week as hedge funds pull cash out of the market, the tone too was slightly improved.
"We're stable, although not a great deal better," said one high-yield bond trader. "The US is looking a little heavy but basically we've found a level today. One or two things are trading off a little but that's just supply and demand."
In the investment-grade primary market, German retailer Metro AG's planned bond was taking shape, with good demand expected.
The size of the bond, initially planned at 500 million euros, has been increased to 600 million euros and order books will close shortly, a Metro spokesman said.
Metro is one of the few European investment-grade rated corporates issuing bonds in May. Issuance is picking up slightly after a drought of new benchmark-size paper in the corporate bond markets in the first few months of the year.
Metro is rated BBB by Standard & Poor's and Fitch Ratings, while Moody's Investors Service has issued it a Baa1 rating.
Citigroup, Deutsche Bank and WestLB are lead managing the deal.