Rising stocks steady credit nerves

European credit markets ticked higher on Tuesday as world stock markets hit an all-time high, fuelling demand for riskier securities. Investors temporarily shrugged off concerns over the troubled US mortgage market and rising interest rates to focus on strong earnings and a global boom in demand for equities.
The iTraxx Crossover index tightened 3 basis points to 241 basis points, a trader in London said, amid a less volatile atmosphere than in recent sessions. "Stocks are better ahead of the US holiday (4th July)," the trader said. "There is a healthier tone, but the market is still nervous."
MSCI's main world stock index, a proxy for global equity performance, rose as high as 406.08 on Tuesday, eclipsing the previous high of 405.99 reached on June 5. The index, was up 10.41 percent for the year to date when the new record was hit.
Confidence in stocks served as a welcome switch of focus for a credit market depressed over the past month by a sell-off in the asset-backed bonds prompted by rising US mortgage defaults. Concern over riskier credit has pushed the Crossover index some 50 basis points wider over the past four weeks.
Pending sales of existing US homes in May unexpectedly fell to their lowest level in more than 5-1/2 years, data from a real estate trade group showed on Tuesday in a sign of continued weakness in the housing sector. The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in May, fell 3.5 percent to 97.7 from a downwardly revised level of 101.2 in April. The May index is the lowest since 89.8 in September 2001.
There were few moves among single names, another trader said, though credit default swaps on Alliance Boots, the British high-street health and beauty chain bought by private equity in Europe's biggest ever leveraged buyout, remained volatile.
On Friday, Boots launched the syndication of 9 billion pounds of bank debt backing the buyout, and on Monday said it would not repay existing short-term bonds early. Boots CDS tightened some 10 basis points early on Tuesday to 267 basis points, paring 70 basis points of widening in recent sessions. In the primary market, where activity has been largely stalled by spread volatility, French industrial gases firm Air Liquide named BNP Paribas, Calyon and Citigroup to manage a benchmark euro bond sale.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 45.3 basis points more than similarly dated government bonds at 1540 GMT, 0.4 basis point less on the day.