A rating agency upgrade buoyed Vivendi Universal's bonds on Wednesday, while impending changes to benchmark credit indexes helped boost Europe's wider corporate bond market.
Late on Tuesday, Moody's Investors Service raised its rating on Vivendi one notch to Baa2 - from Baa3, on the threshold of "junk" - after a forecast-beating set of results from the French media and telecoms group.
Moody's said the move reflected steady progress in Vivendi's operating performance, particularly its improving media businesses and its streamlined corporate structure.
"Vivendi bonds traded significantly tighter after the upgrade," one telecoms bond trader said. Vivendi's 3.875 percent bond due February 2012 tightened about 4 basis points, bid at 68 basis points over government debt, he said.
Technical factors helped support the broader market ahead of September 20 changes to the iTraxx indexes of European credit default swaps, traders said. A dearth of bond supply - confounding analysts' earlier forecasts of brisk new bond sales in September - also lifted the market by boosting demand for existing bonds.
"We are tighter again because of the upcoming roll in the CDS indexes, selling of structured product and because the supply we were expecting hasn't materialised," a second trader said.
The iTraxx indexes rallied as investors sold credit protection to exploit uncertainty over the projected value of the new index series - betting others would miscalculate the effects of the indexes' changed maturity and constituents.
In a pattern similar to earlier rolls, investors bet they can profit by selling the Series 3 iTraxx before the roll and buying Series 4 back cheaper when it is launched.
The iTraxx Europe index spread was bid at 34.6 basis points in late trading, around two basis points tighter so far this month and the tightest level in the life of the current contract, which runs until June 2010. Credit spreads have also tightened as banks hedge sales of structured products, such as collateralised debt obligations (CDOs), the trader said.
CDOs enable investors to express views on baskets of debt within a larger portfolio. Selling new structures often boosts demand for credit as banks look to hedge their portfolio exposure.
There had been a wave of new activity in the seven and 10-year part of the curve, the trader said.
Bonds from automakers, one of the biggest sectors in the European market, rose in line with a firm wider market.
General Motors' 8.375 percent euro bond due July 2033 rose slightly, bid at 82.25 percent of face value. BMW's 2.75 percent bond due September 2010 - which it sold on Tuesday, meeting strong demand - was bid about a basis point tighter, at 32.5 basis points over government debt, an autos credit trader said.
"It was priced at 17 basis points over mid-swaps, so it hasn't got far to tighten, but it is a solid credit: apart from Toyota, it's by far the strongest name in the sector," he said.
The iTraxx Crossover index, used as a barometer of sentiment in the high-yield market, stood at 269 basis points on a mid-price basis, some 5 basis points lower on the day, a crossover credit trader said.
French engineer Alstom was one of the strongest crossover performers, tightening some 20 basis points to 220 basis points, meaning it costs 220,000 euros a year to insure 10 million euros of the company's debt against default.
Alstom debt has rallied since the firm sold a well-received bond last week, priced at the tight end of expectations.