The European credit market diverged on Wednesday, with investment-grade corporate bonds holding on to gains made early in the session, but high-yield bonds drifting lower as US Treasuries came under pressure.
Early in the session, the credit market had rallied across the board after US Federal Reserve minutes showed the central bank's policy-makers felt they had nearly finished raising interest rates.
But on Wednesday afternoon, yields on 10-year US Treasuries pushed above 5 percent, damping sentiment in the high-yield market, which is more sensitive to interest-rate risk than its higher-rated counterpart.
"We're drifting a little wider," said one trader in London. "The whole market is moving in tandem: tighter this morning, now wider, so we're back to unchanged (on the day)."
The iTraxx Crossover index, made up mostly of high-yield credits, was trading at 264 basis points by 1430 GMT, having been as low as 259 basis points earlier in the day.
Also drawing attention in high-yield was the announcement of a 2.031 billion euro equivalent bond deal that will help finance the private equity buyout of Danish phone operator TDC.
Roadshows for the three-part sale - comprising a dollar fixed-rate bond, and euro fixed-rate and floating-rate pieces - via Nordic Telephone Company Holding ApS start on Thursday, a banker familiar with the sale said on Wednesday.
Five-year default swaps on TDC were at 245 basis points on Wednesday afternoon, while NTC swaps were indicated at 410 basis points, dealers said.
Five private equity funds - Apax Partners, Permira, the Blackstone Group, Providence Equity Partners and Kohlberg Kravis Roberts & Co - clubbed together last year to buy TDC in Europe's biggest-ever leveraged buyout.
Both Moody's Investors Service and Standard & Poor's cut their ratings on TDC deeper into "junk" status last week, with S&P assigning the group a BB- corporate credit rating and Moody's ranking the group at Ba3. The new bonds have yet to be rated.
In the investment grade market, however, bonds held onto the morning's gains.
"We haven't seen too much of a backup," said one telecoms bond trader in London. "We haven't given back any gains."
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 46.7 basis points more than similarly dated government bonds at 1505 GMT, 0.4 basis points less on the day.
The cost of insuring debt in both General Motors' financing arm General Motors Acceptance Corp, and Ford's financing arm Ford Motor Credit fell, ahead of the companies' results this week.
"The whole market is feeling a bit better," an autos trader in London said, "There's been tightening across the board."
Five-year credit default swaps (CDS) on GMAC tightened 5 basis points, to be bid at 335 basis points, he said.
Five-year CDS on Ford Motor Credit were bid at 470 basis points, also 5 basis points tighter.
GM, the world's largest carmaker, posts first-quarter results on Thursday, while Ford reports on Friday.