Rumours that a credit ratings downgrade may be on the way for US car maker General Motors pushed its bond spreads wider in the European corporate bond market on Thursday, while elsewhere credit traded mixed in thin volumes.
"GM is going wider on rumours of an apparent downgrade and they are also buying back convertible bonds, which makes their credit fundamentals weaker," said one trader at a Nordic bank.
Both Moody's Investors Service and Standard & Poor's have a negative outlook on GM's ratings.
GM's 8.375 percent euro bond due 2033 was bid nine basis points wider at 283 basis points over government debt, under-performing the sector, another trader said.
Moody's rates both Ford Motor Co and General Motors Corp at Baa1, three notches above junk. It rates the finance arms Ford Motor Credit Co and General Motors Acceptance Corp one notch higher, at A3, and has a negative outlook also on GMAC.
Rival S&P rates Ford Motor Co at BBB-, the bottom of investment-grade, but has General Motors Corp one notch higher at BBB. It rates the finance arms at the same level as the parent organisations.
In the wider market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 50.6 basis points more than similarly dated government bonds at 1523 GMT, 0.1 basis point less on the day.
The cost of credit protection for Europe's largest tourism company TUI fell 15 basis points to around 260 basis points after the group vowed to boost earnings by almost 75 percent in 2004 after beating expectations for the second quarter.
TUI's 6.625 percent bonds due in 2011 rose one point - partially helped by a rally in the government market - to 101.5 percent of face value by 1415 GMT, a trader said.
In telecoms, AT&T bonds gained as investors decided a ratings cut to "junk" by S&P on Tuesday was not all bad news. The downgrade triggers a step-up in coupon payments that investors had not priced in, a trader in London said.
The US phone company's 6.75 percent euro bonds due 2006 tightened some six basis points to 195 basis points over government debt, he said.
In the UK, investors were still pondering the impact of British water regulator Ofwat's draft pricing review. Ofwat offered privatised water firms the right to raise household water bills by 13 percent over the next five years, less than half the increase the companies had asked for.