The auto sector pushed back into the spotlight of a quiet bond market on Friday with General Motors' euro-denominated bonds widening sharply ahead of next week's expected decision on the fate of its deal with Fiat. Euro bonds of General Motors Corp rounded off a turbulent week moving sharply wider in a largely technical market, a trader said. By 1520 GMT, the company's 8.375 percent bond due 2033 was around 20 basis points wider, bid at 400 basis points over Bunds.
"It's purely down to the technicals. The market got too tight," the trader said.
GM's 2033 bond traded early on Monday at more than 420 basis points over Bunds, then rallied sharply on Tuesday and Wednesday after Lehman Brothers changed the rules on its corporate bond index to include Fitch Ratings, reducing the risk that the company could fall out of the index if Standard & Poor's were to downgrade the company to "junk" status.
As early as February 2, Italy's Fiat may seek to exercise a disputed option to force GM to buy the loss-making Fiat Auto unit.
Fiat shares have risen about 5 percent this week on hopes that GM would offer cash to resolve the dispute. Estimates by analysts have ranged as high as 3.6 billion euros, but investors expect something closer to 1.5 billion euros.
"Anything below 1.5 billion euros should be fine (for GM)," the trader said.
In the wider market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 45.3 basis points more than similarly dated government bonds at 1555 GMT, 0.1 basis points more on the day.
In the high-yield market, euro-denominated bonds of Tower Automotive Inc remained volatile on concerns whether the company would make an interest payment due on Tuesday, a trader said.
Tower's 9.250 percent euro bonds were around a point weaker at 53 percent of face value by late afternoon having fallen to 50 percent of face value earlier in the day.
In the primary market, German packaging company Mauser will price a 175 million euro 8-year high-yield bond early next week to give a yield in the 9.25 percent area, an investor said, citing a document from the deal's lead managers.
In the asset-backed market, Britain's biggest commercial provider of student accommodation, UNITE GROUP, plans to sell a 250 million pound bond backed by income from student housing in England, Scotland and Wales. Royal Bank of Scotland is the lead manager.