The tone in the European corporate credit market remained weak early on Monday as equity markets started the week in the red and concerns continued over fallout from the troubled US subprime mortgage market.
Among single names, bonds of Italy's Wind Telecomunicazioni moved lower as the company announced plans for a refinancing and Virgin Media CDS headed wider on reports that the British cable operator was up for sale.
The iTraxx Crossover index, made up of 50 mostly "junk"-rated credits, traded as high as 240 basis points early on Monday, some 8 basis points more than late Friday, before easing fractionally to 239 basis points by 0745 GMT, traders in London said. European equities declined following a late sell-off in US stocks on Friday as worries over the impact of rising borrowing costs continued to dampen investor sentiment.
This week may offer some respite, however, as the US celebrates Independence Day on Wednesday, and trading flows may be calmer as a result. "Volatility may settle as July 4 approaches," strategists at Lehman Brothers said in a note to clients. But they warned that US payrolls data due for release on Friday and rate decisions by the European Central Bank and the Bank of England would keep nerves on edge.
The cost of insuring debt of Wind Acquisition Finance rose and its bonds dropped on Monday after the Italian telecoms company said it was asking bondholders to agree to a refinancing and the sale of its towers business.
Five-year CDS on Wind rose 25 basis points to 340 basis points, a trader in London said, while its bonds dropped 4 points to be bid at 110.5 percent of face value, reflecting the fee that the company will pay for bondholders to consent.
Meanwhile, CDS on British cable operator Virgin Media rose 10 basis points to 430 basis points after people familiar with the situation said the company had appointed Goldman Sachs to seek a possible buyer. The sources said Carlyle Group had offered in recent weeks to buy the company, but declined to disclose the price put forward.
Elsewhere, French industrial gases group Air Liquide said it would tap the bond market as it buys back shares and invests more than 10 billion euros over the next five year to boost revenues, profits and cash flows. It said it planned to maintain an A-category investment-grade rating. Credit analysts at Royal Bank of Scotland said they had moved to an underweight recommendation on Air Liquide.
"The combination of share buy backs, acquisition risks and potential for further LBO rumours surrounding the name ... leads us to conclude that risk is skewed to the downside and as such we move to an underweight recommendation," they wrote in a note to clients.
In the cash bond market, 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 0805 GMT, 0.9 basis points more on the day.
In underlying government bond markets, the yield on the interest rate sensitive two-year Schatz was 4.416 percent, 3.2 basis points less on the day. The 10-year Bund yielded 4.523 percent, also 3.2 basis points less. The 10-year euro swap rate was 4.817 percent.