European credit markets opened tighter on Wednesday, buoyed by stronger stocks, traders said, though credit default swaps on Scania widened after the truckmaker confirmed it was expecting a bid from German rival MAN AG.
European shares ticked up, helped by upbeat earnings and strong gains on Wall Street overnight, as crude prices slipped to their lowest levels in around six months.
The iTraxx Crossover index, made up mainly of high-yield credits, was 3.5 basis points tighter, at a mid-price of 234.5 basis points, an index trader in London said, while the iTraxx Europe index was 0.25 basis points tighter at a 27.125 mid-price.
Index protection is likely to gain support as next week's CDS roll approaches, Dresdner Kleinwort analysts wrote in a note to clients. "Price-wise we are stronger. The market was tighter at the open, and we haven't seen any fall-through yet," the index trader said.
In the telecoms sector, which was hit earlier this week by a restructuring announcement from Telecom Italia on Monday, sentiment was also stronger. "It's been carnage over the last few days, but it is stabilising now," the trader said.
"Generically we are tighter, due to a rally in US equities - and US credit markets closed stronger last night." Five-year credit default swaps on Telecom Italia were 2 basis points tighter, at a 64 basis point mid-price, in line with the market, he said. Deutsche Telekom was indicated at a 41 basis point mid-price, also 2 basis points tighter.
The cost of insuring the debt of Scania against default rose, after a Swedish newspaper said Sweden's Investor was willing to sell its shares in the Swedish truck-maker. Scania said on Tuesday it was expecting to receive a bid from Germany's MAN AG.
Five-year credit default swaps were 2 to 3 basis points wider, at a 31.5 basis point mid-price, a trader in Scandinavia said. "There's ongoing talk of a MAN bid. The shares have reacted quite strongly, and people are nervous in the CDS market," he said. Scania shares jumped 10.4 percent at the open to 430 crowns, after rising 9 percent on Tuesday.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 52.2 basis points more than similarly dated government bonds at 0800 GMT, 0.1 basis points less on the day. In the primary market, the rush of issuance is set to continue.
French media and telecoms group Vivendi plans to sell a dual-tranche five and seven-year euro-denominated bond later on Wednesday, the banks managing the sale said, while French real-estate leasing company Locindus is set to sell a 10-year euro bond.
In underlying government bond markets, the yield on the interest-rate-sensitive two-year Schatz was 3.661 percent, 1.6 basis points less on the day. The 10-year Bund yielded 3.799 percent, 0.9 basis points less. The 10-year euro swap rate was 4.021 percent.
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