European corporate bonds declined on Thursday, but closed above the day's lows after the Spanish government dismissed market speculation that deadly blasts in Madrid had been the work of al Qaeda.
Bonds had earlier plunged as equity markets tumbled across the region amid speculation over who had planted the bombs, which killed at least 180 and injured some 900 people.
Spanish government officials rejected talk the attacks were the work of an Islamic group, saying there was "no doubt" that the Basque separatist group ETA was responsible.
An auto bond trader said credit markets had regained some ground in late afternoon trading, after plunging previously.
"Things started off terribly but are coming back a bit now with bids returning at the lower levels," said a trader. "Equities and what happened in Madrid were driving the market, but technically now its looking a bit short."
General Motors' 8.375 percent euro bond due in July 2033 was bid at 255 basis points over Bunds, 15 basis points wider for the day by 1515 GMT. The bond had earlier widened as much as 25 basis points, the trader said.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 63.5 basis points more than similarly dated government bonds at 1552 GMT, two basis points more on the day, after earlier rising to as high as 65.8.
Bonds have slid in recent sessions amid concern over falling stocks and weaker global growth. Traders reported a shift out of bonds maturing in five to 10 years into long-dated 30-year bonds.
Traders said liquidity was returning to some sectors of the credit derivatives market on Thursday afternoon, after bids and offers had been withdrawn on uncertainty over the nature of the Madrid blasts.
Around 1545 GMT, he said five-year default swaps on Accor were around 105 basis points, meaning it costs 105,000 euros a year to insure 10 million euros of Accor debt against default. The price had risen as high as 108 basis points earlier, he said. Protection on Hilton Group Plc was quoted around 67.5 basis points, the trader said.
Elsewhere, Dutch telecoms group KPN said it would buy back 500 million euros of its own shares and also planned to redeem 900 million euros in loans.