Debt of European insurance companies proved resilient on Tuesday in the wake of Hurricane Katrina in the US, while auto bonds weakened as the credit market drifted lower after a long weekend in the UK.
The cost of insuring against debt of European insurance companies rose just one to two basis points as Munich Re, the world's largest reinsurer, estimated that the hurricane could lead to total insured losses of $15 billion to $20 billion. But this move was in line with the broader market.
Damage from the storm was severe to catastrophic in much of Louisiana and Mississippi, and at least 50 people were killed.
"The reaction hasn't been quite as severe as you might expect given some of the headlines," a credit derivatives trader in London said.
Five-year subordinated credit default swaps on Munich Re were trading at around 49.5 basis points by 1440 GMT, he said, up two basis points on the day. The price means it costs 49,500 euros a year to insure 10 million euros of the company's debt against default.
"European reinsurers and insurers are in a robust position to cope with the costs," Robert Montague, a credit analyst at SG, said in a note to clients.
Other sectors such as telecoms edged lower in value too.
"The market wants to go a little bit wider," said one trader in London. "The risk-reward isn't really there at the moment, so people want another three or four basis points before they'll step back in. And with some weakness in the government bond markets, there's just an excuse for us to go wider."
Elsewhere, euro-denominated bonds of US automakers drifted lower as concerns returned over the condition of parts maker Delphi, a trader said.
The Wall Street Journal reported late on Friday that the United Auto Workers union had asked car maker General Motors Corp to take back up to 7,000 workers from Delphi, which it spun off in 1999.
Delphi has said it would consider filing for bankruptcy if the UAW and GM fail to more quickly to help it lower wages and health-care costs. "It looks like the unions are still prepared to play hardball," said one trader in London. "GM, in a vacuum of information, will drift tighter because there's such carry on offer. But there is potential for negative newsflow."
GM's 8.375 percent euro bond due 2033 was bid at 84.25 percent of face value, having traded as high as 86 percent at the end of last week.
The iTraxx Crossover credit default swap index, used as a barometer of sentiment in the high-yield market, was two basis points wider on the day at 284 basis points, a trader said.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 37.5 basis points more than similarly dated government bonds at 1455 GMT, 0.2 basis points more on the day.
Engineering group Alstom, the maker of France's high-speed trains, broke the summer silence in the corporate primary market with plans for a bond of at least 400 million euros with a maturity of 3-1/2 years. "This is part of the progressive refinancing of our debt and allows us to benefit from lower interest rates," a company spokeswoman said.
Dresdner Kleinwort Wasserstein, HSBC, IXIS CIB and Natexis Banques Populaires will manage the issue. A banker familiar with the bond sale said that roadshows for the issue would be held on Thursday and Friday this week.
Alstom, also active in power generation equipment and marine propulsion systems, is recovering from a financial crisis that required a state-backed bailout in the summer of 2003.
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