Telecom and auto bonds inched slightly tighter in the European corporate bond markets on Monday, thanks to strong equity markets and oil prices easing from new record highs.
"Today started off pretty quiet, but in the last hour or so things turned quite a bit better. We've seen oil drop off highs and the Dow (Jones industrial stock index) 100 points higher," said a telecoms bond trader in London at around 1450 GMT.
Bonds of French catering company Sodexho Alliance were in focus after widening in the past couple of sessions on reports the company had run into conflict with trade unions in the United States.
Sodexho's 5.875 percent euro bonds due 2009 have widened around 10 basis points since Thursday on woes over union action, said a trader.
Another trader said the company's credit default swaps initially reversed last week's rise and opened four basis points tighter, but moved back up to trade unchanged at 78 basis points by around 1440 GMT.
The CDS are 10 basis points wider from Thursday, and at the current price it costs 78,000 euros a year to insure 10 million euros of Sodexho debt against default.
"We believe that the spread widening at the end of last week was overdone, based on the information that we have at present, and hence we would expect some of this weakness to be retraced in the near term," Commerzbank Securities said in a research note.
A Sodexho spokesman said there was no new comment to make apart from a statement the firm made in early July when it said it acknowledged and respected the right of all employees to join labour unions, and the right of collective bargaining.
German travel group TUI also remained in focus, its CDS widening 15 basis points to 300 basis points on speculation private money or Spanish hoteliers may be coming in for a 31 percent stake in the firm now held by WestLB.
"The headline risk has made their credit a bit volatile," said a trader.
In the wider market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 51.2 basis points more than similarly dated government bonds at 1533 GMT, flat on the day.
Telecom Italia's 7.75 percent euro bonds due 2033, one of the most liquid telecom issues, were two basis points tighter at 127 basis points over government debt, a trader said, gaining late in the session.