Widespread selling grips corporate bonds

Widespread selling gripped the European corporate bond markets on Monday as investors caved in to recent spread widening and looked to dump credit wherever they could find buyers. Bonds of major car makers were once again in the spotlight, with spreads on Ford, General Motors and DaimlerChrysler widening as much as 30 basis points as their cost of credit protection soared.
"People threw in the towel today and were just trying to close their risk down however they could," said a trader in London. "It's been carnage across the board."
Bonds have fallen in the past few weeks amid concern over rising oil prices, higher interest rates and the suspicion that spreads at previous record tight levels were unsustainable. Rising levels of buyout activity and poor reception for issues in the primary market have added to the negative sentiment.
The spread on Ford's 4.875 percent euro bond due in January 2010 was bid 30 basis points wider at 335 basis points over Bunds, while the cost of credit protection on Daimler rose 17 basis points to 97 basis points, meaning it costs 97,000 euros to insure 10 million euros of Daimler debt. It was trading at 51 basis points in early March.
The malaise spread even to the usually secure insurance sector, with subordinated bonds of leading European houses among the many fallers, traders said.
The cost of credit protection on subordinated bonds of Munich Re, the world's largest reinsurer, and Hannover Re, the fourth largest, was trading around five basis points higher with Munich Re at 56 basis points and Hannover Re at 62 basis points, a trader said.
Five-year credit default swaps on UK retailer Marks & Spencer traded 15 basis points higher, bid at 120 basis points, according to HSBC data, while French telecom equipment maker Alcatel was 10 basis points higher at 110 basis points.
"It's not an exaggeration to say that it's been a terrible day," said a trader in London. "I would say we are quite a long way from the end of this."
General Motors, among the most actively traded bonds in the European markets, has been at the forefront of the selling, with some of its bonds widening by more than 200 basis points in recent weeks on concern the world's largest car market may lose its investment grade status later this year.
Surprisingly, the company's 8.375 percent euro bond due in July 2033 was one to buck the trend, trading only around 10 basis points wider as traders speculated it may be nearing its wide level after a 31 percent move in the past month.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 59.8 basis points more than similarly dated government bonds at 1606 GMT, 2.2 basis points more on the day.
General Motors and Ford posted weaker March US vehicle sales on Friday, losing further market share to their Japanese competitors Toyota and Nissan.
GM, which warned in March that it expects sharply weaker profits this year, said its US light vehicle sales fell 1.3 percent during the month. Ford said its US sales dropped 5.1 percent.