Mildly positive sentiment suffused a soporific European corporate bond market on Tuesday as investors scavenged for bargains, while prices were generally little changed. Longer-dated telecoms paper edged higher, as investors looked to increase risk exposure on bets the benign credit environment would stretch into September.
Telecom Italia's 50-year bond due 2055, the longest-dated corporate euro bond, was trading 2 basis points tighter, bid at 164 basis points over government debt, one telecoms trader said.
Longer-dated securities are riskier because they rise and fall more in price for each basis point move in yield spread.
The cost of insuring debt in Danish telecom operator TDC against default fell slightly, as recent fears of a debt-heavy leveraged buyout (LBO) receded.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 37.2 basis points more than similarly dated government bonds at 1510 GMT, 0.1 basis point less on the day.
Corporate bonds have rallied in recent months as investors shrugged off rising commodity prices to focus on low default rates, stable ratings and improving earnings.
Only companies threatening to become involved in take-overs or LBOs have seen substantial spread widening in recent weeks, with TDC and tourism firm TUI, bidding for CP Ships, seeing their cost of credit protection rise.
Elsewhere, auto bonds were little changed, with volumes low in typical midsummer trade, a trader said. "Oil's a bit higher, but not enough to have any impact," the trader said.
General Motors' 8.375 percent euro bond due in July 2033 was bid at 86.5 percent of face value, and Ford's 4.875 percent euro bond due January 2010 was bid at 94.25 percent of face value - both unchanged on the day.