The European corporate bond market dipped on Wednesday as European equity markets fell, with concerns over inflation, interest rates and slowing earnings growth dominating.
The buoyant tone to the market, sparked by General Motors' announcement on Monday that it was looking to sell a stake in financing arm GMAC to return it to investment grade, was punctured, although there was little sign of selling.
"The whole market is under a bit of pressure," said one trader. "There's the equity market, there's a new hurricane coming, there's bird flu ... Everything is adding a little bit of pressure."
However, the market remained within the range it has established recently, the trader said.
In autos, the cost of insuring GMAC's debt against default was little changed, with five-year credit default swaps bid at 275 basis points. That means it costs 275,000 euros a year to insure 10 million euros of the company's debt against default.
But profit-taking and concerns over the eventual fate of a slimmed-down General Motors knocked its bonds, traders said.
General Motors' 8.375 percent euro bond due in July 2033 dipped about a point, bid at 76 percent of face value.
The focus turns now to Ford Motor Co, due to report results on Thursday. Five-year default swaps on Ford were little changed, bid at 390 basis points.
Jim Padilla, Ford's chief operating officer, said on Wednesday that the company expects to cut a deal on health costs with the United Auto Workers union similar to that won by GM earlier in the week.
The trader said the market expected this. "It would be very hard for the UAW to say, we'll do this for GM but we're not doing this for you," he said.
Ford's relationship with its finance arm, Ford Motor Credit Corp, will also be of key interest. However, analysts at Commerzbank said in a note to clients that they expected Ford would not be as aggressive in restructuring, given that it has a healthier operating position.
FMCC still holds investment-grade ratings from both Moody's Investors Service and Fitch Ratings.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 38.0 basis points more than similarly-dated government bonds at 1509 GMT, 0.6 basis points more on the day.
The malaise spread to the high-yield market, although again activity was slow.
"It's clear the biggest event in credit this year is going to be the sale of GMAC. But everyone's assuming that's going to go through, and it looks like we've gone beyond that," said one trader.
"Everyone's focused on interest rates, dollar weakness and US equity markets. At one point today the FTSE was down 1.6 percent. It's not encouraging."
The iTraxx Crossover index, used as a barometer of sentiment in the high-yield market, stood about 7 basis points wider at 309 basis points.
In the primary market, UK plastic pipe systems supplier Polypipe set price guidance on a 185 million pound ($322.9 million) two-part high-yield bond it plans to sell this week, a banker familiar with the sale said on Wednesday.
Polypipe plans to sell a 110 million pound, six-year senior secured note to yield 7.5 to 7.75 percent and a 75 million pound eight-year senior unsecured note to yield 9.5 to 9.75 percent, the banker said.
The senior secured note is callable after three years, while the senior unsecured note is callable after four years.
The proceeds from the bond will be used to refinance a bridge loan put in place as part of the leveraged buyout of Polypipe by New-York based private equity firm Castle Harlan Inc Deutsche Bank is managing the bond sale.
At the opposite end of the credit spectrum, German bank Eurohypo set a historically tight spread as it sold a 10-year mortgage Pfandbrief, or covered bond, it said in a statement.
The 2.0 billion euro deal pays a coupon of 3.25 percent and was priced to yield 11.6 basis points over Bunds.