European corporate bonds languish as investors weigh rates

European corporate bonds crept higher on Wednesday as weaker-than-expected US economic data damped expectations for a hike in Federal Reserve interest rates, fuelling demand for fixed income securities.
Bonds of Deutsche Telekom, Europe's biggest telecom firm, were little changed ahead of an expected rating decision in coming days from Standard & Poor's.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 56.8 basis points more than similarly dated government bonds at 1451 GMT, unchanged on the day.
"There is not a great deal of activity," said one trader. "People have got one eye on US data." he said.
Autos bonds were among the best performers, trading one or two basis points tighter, the trader said.
Ford's 5.75 percent bond due in January 2009 was about two basis points tighter at 161 basis points over government securities at 1415 GMT, the trader said.
US orders for durable goods fell more than expected in April as demand fell following a strong March, government data showed on Wednesday.
The Commerce Department said orders for big-ticket items dropped 2.9 percent, the biggest fall since September 2002. Evidence of slower economic growth relieves pressure on the Federal Reserve to lift its key lending rate.
In telecoms, Deutsche Telekom's 7.125 percent bond due in September 2012 was trading little changed at around 78 basis points over government securities, a trader said, ahead of a rating decision expected before the end of May.
S&P placed DT's BBB+ corporate rating on Creditwatch positive on March 10 after the company said it over-achieved on debt-reduction and cash-generation last year. Moody's Investors Service rates the company one notch lower than S&P at Baa2.
Bond's of France's Alstom rose after the troubled engineering firm said it is close to clinching a state-backed bail-out that would pump up to 2.5 billion euros ($3.0 billion) into its balance sheet and ward off bankruptcy.
Traders said the company's euro-denominated bond due 2006 was bid around 1.5 points higher at 97 percent of face value in late trade.
French property company Gecina SA is due to launch a euro-denominated bond of benchmark size in the near future, the lead managers of the deal said on Wednesday.