The iTraxx Crossover index rallied on Friday after key US inflation data suggested consumer price growth in the world's largest economy is under control. The index capped gains later in the session after a report showed US industrial production was flat in May, while consumer sentiment was the weakest in nearly a year.
The Crossover index, made up of 50 mostly "junk"-rated credits, traded 7 basis points tighter at 195 basis points by 1500 GMT, a trader in London said, recovering from its recent wide level of 218 basis points but still above the 190 reading of a couple of weeks ago.
"We tightened up a lot after the inflation numbers failed to give us any nasty surprises, but the economic data is not good, and that has put a cap on the rally," said a trader in London.
The core measure of the Labour Department's consumer price index rose just 0.1 percent in May, a government report showed, below Wall Street's median forecast of 0.2 percent. The number dampened concerns over further rises to the Federal Reserve's key lending rate from the current 5.25 percent. A sell-off in the US and European bond markets over the past week has pushed yields to five-year highs and increased the cost of borrowing for companies.
Later reports showed US industrial production was flat in May, compared with a median forecast for a 0.2 percent rise, and the University of Michigan's consumer sentiment index fell to 83.7 in June, below expectations of a reading of 88.
Among single names, five-year credit default swaps on British retailer Sainsbury rose 6 basis points to 52 basis points, another trader said, after a Qatari group increased its stake to 25 percent, boosting expectations the former bid target faces renewed pressure to sell property.
Delta (Two) Ltd, a vehicle of the Qatari royal family, said it had purchased 123 million shares in British supermarket chain Sainsbury, or a further 7.07 percent stake, at 595 pence per share. Earlier, credit default swaps on SAS moved 2 basis points tighter to 140 basis points - 35 basis points tighter on the week - on planned disposals to help lift profits.
The cost of default protection on Germany's Degussa ended the day about 2 basis points wider at 50 basis points, another trader said, after earlier trading as wide as 55 basis points on speculation over a private equity bid.
In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 41.1 basis points more than similarly dated government bonds at 1440 GMT, 1.2 basis points lower on the day.