Bonds of US auto maker General Motors were in focus once again as a deadline loomed in its long dispute with Italy's Fiat on Tuesday, while in the high-yield market default worries cast a shadow. Widely held bonds of GM were little changed as neither it nor Fiat gave any hint of a last minute deal, but investors and analysts stuck to their bets that GM would pay Fiat to drop an option to sell its car unit to its US partner.
If there is no settlement by midnight Tuesday the two companies are free to take their argument over the put option to court.
"It's a case of waiting for news now. If GM pays up to 1.5 billion euros ($1.96 billion) to Fiat, that would be OK, but more than that would weigh on GM and certainly make S&P look even closer at their outlook," said one trader.
Rating agency Standard & Poor's said in January it was considering changing GM's stable outlook.
Fiat has said it might exercise the option as soon as Wednesday if the last-ditch mediation process fails to resolve the dispute.
US auto sales volumes for January are also due later in the day, but the key numbers are likely to be overshadowed by the GM-Fiat dispute.
In the wider market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 44.5 basis points more than similarly dated government bonds at 1610 GMT, 0.9 basis points less on the day.
The cost of five-year credit protection on Italian defence giant Finmeccanica dropped two basis points, the trader said, to be bid at 34 basis points. That means it costs 34,000 euros to annually insure 10 million euros of the company's debt.
IBM SELLS 1.0 BILLION EURO BOND: In the primary market, US computer group International Business Machines Corp (IBM) sold a 1.0 billion euro ($1.30 billion) 5-year bond, the banks managing the deal said.
The bond pays a coupon of 3.0 percent and was priced to yield 10 basis points over mid-swaps, at the bottom end of previous price guidance, the lead managers said.
Elsewhere, GE Capital European Funding, a financing arm of General Electric sold a 750 million euro ($977.8 million) 7-year bond with a coupon of 3.375 percent, pricing the deal to yield 11 basis points over mid-swaps, the banks managing the deal said.