European credit spreads ended the week on a slightly stronger tone on Friday, ending a volatile week for credit, amid thin trading volumes. In single names, default swaps on Degussa fell sharply in early trading as Moody's Investors Service kept the German chemicals company's credit rating in investment grade territory, while CDS on Ford's financing arm Ford Motor Credit fell again on restructuring news.
The iTraxx Crossover index, made up mainly of high-yield credits, tightened 3 basis points to a 254 basis point mid-price, traders said, having widened to 260 basis points mid-week.
"Most corporate credit spreads seem poised to end this week with a slight upbeat tone on low volumes ahead of the European and US holiday season drawing to a close next week," Royal Bank of Canada analysts wrote in a note to clients. Credit default swaps on Ford Motor Credit fell, traders said, ending a volatile week for the US automaker's financing arm.
Five-year credit default swaps on Ford Motor Credit tightened 20 basis points, one trader said, to a 371 basis point mid-price. "If you'd gone away a week ago, you'd think you hadn't missed much," he said, "Ford widened out to 415 basis points this week, but it's back in again on news of restructuring."
"Basically none of this news is particularly beneficial from a credit perspective, but the market is being quite constructive on it, and that is primarily led by hedge funds rolling the dice again like they did with GM," he said. A second trader said: "The very frequent bits of news on Ford selling stakes shows that the company is willing to address cash burn problems."
Also in autos, 5-year credit default swaps on Renault widened 2 basis points to a 38 basis point mid-price, the second trader said, on continuing concern that the Renault-Nissan alliance may be interested in a partnership with Ford.
Elsewhere, the credit protection cost of Degussa fell earlier on Friday after Moody's downgraded the German specialty chemicals maker late on Thursday but left the rating at investment grade.
Moody's cut Degussa one notch to Baa3, or two notches above the S&P equivalent rating, BB. Standard & Poor's junked Degussa in July on its upcoming integration into industrial conglomerate RAG group.
Five-year credit default swaps on Degussa were 14 basis points tighter on the day at 96 basis points, a trader in Germany said, which means it costs 96,000 euros to insure 10 million euros of Degussa debt against default.
In the wider market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 51.8 basis points more than similarly-dated government bonds at 1501 GMT, 0.4 basis points less on the day.
In the primary market, Belgium's dominant telecom group Belgacom said it is likely to fund its 2-billion-euro purchase of Vodafone's 25 percent stake in mobile operator Proximus with a bond issue.
"Right now I would lean for a large proportion of that to be some kind of bond," Chief Financial Officer Ray Stewart told a news conference after the purchase plan was announced.