Euro auto and telecoms bonds fell in average value on Tuesday, as oil prices hit a record high near $51 per barrel and the US stock market made a subdued opening.
US light crude set a high of $50.91 in electronic dealing before easing to stand up 77 cents at $50.68, as a prolonged US production outage following Hurricane Ivan attracted fresh speculative buying.
Euro auto bond spreads widened as rising oil prices damped investor risk appetite, a trader said. "We have had a good rally and now we are seeing a bit of a fall back. Oil prices and equities are giving the market a negative tone and it's the more volatile credits which are moving down faster," he said.
General Motors'8.375 percent euro bond due in July 2033 was bid three basis points wider at 271 basis points over government debt.
Five-year credit default swaps on Ford rose around five basis points to 167 basis points, a trader said. That means it costs 167,000 euros to annually insure 10 million euros of Ford debt.
Ford's 5.75 percent bond due in January 2009 was trading about three basis points wider at 121 basis points over government securities, the trader said.
"The auto rally which led other sectors higher is over. Volume is very low, and it's mostly brokers selling," said a telecoms trader in London.
France Telecom's 8.125 percent euro bond due January 28, 2033 was bid six basis points wider at 109 basis points over government debt.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 46.1 basis points more than similarly dated government bonds at 1500 GMT, 0.1 basis points less on the day.
In the asset-backed market, Volkswagen Leasing, the leasing unit of German car maker Volkswagen, sold a 969.9 million euro securitisation of auto leases and offered less premium than expected, a sign of good demand.
Citigroup and Societe Generale are lead managing the deal together with Commerzbank and HSBC.
Final pricing was one-month Euribor plus eight basis points for the triple-A tranche, and one month Euribor plus 26 basis points for the A-plus tranche. Initial guidance was for Euribor plus nine basis points and Euribor plus 30 basis points, respectively.
Also in the primary market, Baltic banking group Hansabank sold a five-year 750 million euro floating rate issue at 26 basis points over Euribor.
Hansabank said the issue was the largest by a financial institution from new European Union member countries. It will use the proceeds to finance its general operations in the Baltics and to refinance existing debt.