The European corporate bond market took another pounding on Thursday in the wake of General Motors' profit warning, with Portugal Telecom and French media company Vivendi Universal forced to revise planned new issues. GM, the world's biggest auto maker, and its financing arm GMAC are among the biggest corporate borrowers in Europe, and their bonds weigh heavily in the major bond indexes.
The group's profit warning on Wednesday led rating agency Standard & Poor's to change its outlook to negative, setting the stage for a downgrade to "junk" status, and hitting prices across the corporate bond market.
The FTSE Euro Corporate Bond Index widened 11.1 percent on the day to levels last seen in late January.
The index showed investment-grade corporate bonds in euros yielding an average 47.9 basis points more than similarly dated government bonds at 1610 GMT, 4.8 basis points more on the day.
"We had a little recovery, but then we've popped back out," said one auto bond trader.
GM's 8.375 percent bond due 2033 was bid at 520 basis points over government bonds by 1540 GMT, he said, having swung in a range between 500 and 525 basis points. The company's 7.25 percent 2013 euro bond widened around 25 basis points to be bid at 510 basis points over government bonds. "The bid offer is at best 10 basis points and more like 25-30 basis points, so liquidity isn't that good," he said.
Going against the weaker trend, the retail sector traded slightly tighter, said one credit derivative trader, with the exception of UK foodseller Wm Morrison Supermarkets.
Morrison's CDS widened five to six basis points to around 26 basis points after it said its annual forecast would miss market forecasts as it takes a fresh 40 million pound ($76.94 million) hit from its take-over of Safeway. The level means it costs 26,000 euros a year to insure 10 million euros of Morrison debt against default.
As a fresh sign of weakness of the high-yield market and in credits linked to the auto industry, US auto parts maker Hayes Lemmerz International Inc withdrew a planned 120 million euro offering of 7-year senior unsecured notes.
However, German fashion group Escada is planning to price a 200 million euro high-yield bond on schedule on Friday to yield in the 7.5 percent area, a banker familiar with the deal said.
In the investment-grade market, Portugal Telecom and Vivendi Universal offered investors more yield on their respective new issues.