British engineer GKN Plc and service firm Rentokil Initial led the European corporate bond market lower on Tuesday, amid light trading in what is traditionally the quietest month of the year.
Five-year credit default swaps on GKN traded as much as 7 basis points wider bid at 93 basis points, a trader said, though there was no obvious reason for the move.
And default swaps on Rentokil traded as much as 10 basis points wider at 70 basis points, the trader said. That means it costs 70,000 euros a year to insure 10 million euros of the company's debt against default.
The trader cited a recent 10 million pound ($17.72 million) share placing as a possible cause, adding the company was a perennial object of take-over rumours.
The cost of credit protection on a firm often rises on take-over talk because of concern a buyer may finance the deal by loading the target company with debt.
"Rentokil and GKN are moving but it's difficult to know whether it's news flow or just speculation," said a trader in London. "There is very little action out there."
The market was softer overall, traders said, as a recent rally that pushed spreads to near record tight levels appeared to be petering out.
The iTraxx crossover index, containing credit default swaps rated both investment and speculative grade, traded three basis points wider at 279 basis points according to the International Index Company.
It hit a high of 441 in May, after Standard & Poor's downgraded General Motors and Ford to "junk".
Long-dated telecoms bonds continued to inch wider as dealers liquidated long positions, a telecoms trader said.
Telecom Italia's 50-year bond due 2055, the longest-dated corporate euro bond, widened 1-2 basis points to be bid at 173 basis points over government debt, the trader said.
France Telecom's 8.125 percent euro bond due January 28 2033 also crept a basis point wider, bid at 100 basis points over government bonds.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 37.3 basis points more than similarly dated government bonds at 1441 GMT, 0.1 basis points more on the day.
In the high-yield market, bonds issued by German cable companies iesy and Tele Columbus rallied after iesy said late on Monday it wanted to take over the Hanover-based cable television and radio company, traders said.
The two companies said they hoped to complete the deal in the fourth quarter of this year.
Iesy's 10.125 percent euro bonds due 2015, issued early in July, hit a high of 107 percent of face value on Tuesday morning, up from 103 percent on Monday, he said.
Tele Columbus's 9.375 percent euro bond due 2012 rose about 1.5 percentage points to 105.875 percent of face value.
In the primary market, French electrical equipment maker Schneider Electric was poised to sell a two-part, 1.5 billion euro ($1.83 billion) bond, a source familiar with the deal said.
The deal will comprise a 900 million euro 5-year tranche priced to yield 28 basis points over swaps, and a 600 million 12-year tranche at 51 basis points over swaps, the source said.
The pricing of the two tranches is in line with earlier guidance of mid-swaps plus 28 to 30 basis points, and mid-swaps plus low 50s basis points, respectively.
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