European credit spreads were wider on Wednesday as General Motors fuelled fears about earnings, but the primary market saw almost 2.5 billion euros ($3.7 billion) of new corporate issuance with Unilever and Eni starring.
By 1615 GMT, the iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, was at 355 basis points, according to data from Markit, 10 basis points wider than late on Tuesday. GM, the largest US automaker, posted its largest quarterly net loss, reflecting a $39-billion charge related to unclaimed tax credits and a loss at its former finance subsidiary GMAC.
The cost to protect bonds of GM and its former finance subsidiary GMAC against the risk of default both jumped in reaction to the record loss. GM's debt protection costs rose to around 600 basis points, which means it costs $600,000 annually to insure $10 million of debt for five years.
The Crossover index swung wider to 358 basis points after the GM figures, edged tighter and then drifted wider again, tracking movements in equity markets. "We have come back a bit. We are grinding tighter when there are no major negative headlines but there is a big jump wider on any scares," a trader said.
But it was the primary markets that took centre stage with a host of investment-grade corporates launching deals at the tighter end of guidance. Anglo-Dutch consumer products group Unilever, Dutch postal company TNT and Italian energy giant Eni were all able to tighten guidance on their benchmark deals in a sign of strong demand.
Unilever priced a 750 million euro 5-year bond, TNT raised 650 million euros with its 10-year bond while Eni set final guidance on a 1 billion euro bond of the same maturity at mid-swaps plus 88 basis points. New euro bond issuance for high-grade corporates has been more than $7 billion in the last 24 hours. Drugmaker AstraZeneca and Dutch telecoms company KPN launched new issues on Tuesday.
"Good quality corporates are still able to get stuff done," said Bob Janjuah, a credit strategist at RBS. Nonetheless markets remain nervous with oil at record highs and nearing $100 a barrel, extreme US dollar weakness and gold nearing its all-time peak. There are also continued fears about banks' exposure to risky subprime-related assets.
Moody's Investors Service on Wednesday said it may cut $7.34 billion in European collateralised debt obligations ratings and it cut $254 million of US securities tied to risky subprime bonds. A total of 129 tranches from 36 CDOs are affected. Moody's last month said it may accelerate rating cuts of CDOs tied to deteriorating mortgage loans, affecting 461 CDOs in United States and 41 CDOs in Europe.