European corporate bonds held at tight spread levels in thin trade on Friday, although profit-taking meant some telecoms bonds pared recent gains. The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 36.2 basis points more than similarly dated government bonds at 0731 GMT, 0.2 basis points less on the day, and the narrowest spread this year.
Bonds from major auto borrowers Ford and General Motors bonds were little changed ahead of second-quarter results due Tuesday and Wednesday respectively.
GM's 8.375 percent euro bond due in July 2033 traded unchanged, bid at 86 percent of face value, after rising two points on the week, an autos trader said.
Ford's 4.875 percent euro bond due in January 2010 was slightly higher, bid at 92.75 percent of face value - also about two points higher on the week.
Only much worse-than-expected results would push the bonds lower in the current climate, the trader added.
"I sort of feel it would have to be disastrous to impact prices because we have seen it all before," he said. "It won't be a new phenomenon."
Bonds of Ford and General Motors fell heavily in May, causing widespread losses, after Standard & Poor's cut the troubled US car makers to "junk" status, citing falling US, market share and spiralling healthcare costs.
Telecoms bonds moved a touch wider, after hitting the week's tightest levels on Thursday, with the longer-dated bonds that had led the rally slackening most.
"It's just a little bit of profit-taking - a small amount of weakness in the equity markets today has taken some of the steam out of the rally," said one London telecoms trader.
"But the bid's still well-supported, so I think it's only a bit of a pull-back for the end of the week."
Telecom Italia's 50-year bond due 2055, the longest-dated corporate euro bond, widened 2 basis points, bid at 158 basis points over government debt.
France Telecom's 8.125 percent euro bond due January 28 2033 widened about 1.5 basis points, bid at 89 basis points over government bonds, he said.
The iTraxx index of crossover credits, containing companies rated both investment grade and high yield, widened about 6 basis points to 275 basis points, the trader added.
Bonds in Germany's Bayer, the drugs and chemicals group, which is planning to sell a benchmark hybrid bond next week, stood at record tight levels.
A banker familiar with the deal said it had been "heavily over-subscribed," and a trader said the new bond looked cheap compared to issues from peers such as Linde, and had attracted a lot of "fast money" accounts. Bayer's 2007 euro bond - which it will partly buy back using the proceeds of the new deal - and its 2012 bond both were at all-time tights, the trader said.
The 2007 bond was about 10 basis points tighter on the week, bid at 22 basis points over government debt.
Among utilities, the cost of insuring debt from Finnish utility Fortum against default fell slightly, after Moody's Investors Service raised its credit rating on the firm.
The ratings agency upgraded Fortum to A2 from A3, citing an improved risk profile after it demerged its oil and shipping operations.
Five-year credit default swaps on Fortum tightened one basis point, bid at 24 basis points, one London credit trader said, meaning it costs 24,000 euros a year to insure 10 million euros of Fortum debt against default.
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