Crossover index volatile as investors balance risks

The iTraxx Crossover index was volatile on Thursday as rising demand for credit was offset by continuing concern over the US subprime loan market. The cost of insuring debt of Cadbury Schweppes rose after the company said a US private investor had raised his stake in the company, fuelling speculation over a break up.
The Crossover index comprising 50 mostly "junk"-rated credits, traded in a range between 220 and 228 basis points, a trader said, as investors took positions after recent volatility. It was at 224.5 basis points at 1430 GMT.
"It's all over the place," the trader said. "I think we have probably got more bad news to come."
Investors had one eye on the United States, where the Federal Reserve is widely expected later on Thursday to keep its key lending rate steady at 5.25 percent. Rising long-term US interest rates have helped push down demand for corporate debt.
Corporate debt has fallen sharply over the past week as concern over delinquencies in the riskiest US mortgages, and its impact on collateralised debt obligations, dampened demand for fixed-income securities.
Earlier, five-year credit default swaps on Cadbury traded 5 basis wider at 42 basis points, a trader said, after the company said US investor Nelson Peltz had acquired 3.47 percent of the company's voting rights. Cadbury said in March that Peltz had built up a 3 percent stake, sparking talk he wanted to split up the company to unlock value.
The cost of default protection on Arcelor Mittal, the world's largest steelmaker, was volatile, another trader said, after Merrill Lynch downgraded the company's stock to "neutral" from "buy". Arcelor Finance this week postponed a planned two-part benchmark euro bond sale, traders say.
Five-year protection on Arcelor traded as much as 7 basis points wider at 35.5 basis points, before settling in later trade at 32.5 basis points. Credit default swaps on Altadis traded 4 basis points tighter at 80.5 basis points, the trader said, as rival groups looking at bidding for the company wrapped up their due diligence.
Britain's Imperial Tobacco is competing with private equity firm CVC Capital Partners to buy the maker of Gauloises and Fortuna cigarettes. In the cash bond market, the FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 44.2 basis points more than similarly dated government bonds at 1440 GMT, 0.5 basis points more on the day.
In the high-yield market, South African telecoms operator Cell C's euro and dollar bonds rose after the company said it might undertake a recapitalisation, a trader in London said.
Chief Executive Officer Jeffrey Hedberg told reporters that Cell C's shareholders were looking at options to improve the company's capital structure and could buy back its bonds. The company's 8.625 percent euro bonds due 2012 rose 1.5 percentage points to be bid at 98.5 percent of face value, while the 11 percent dollar bonds due 2015 rose 2.5 points to be bid at 92.5 percent of face value.