EURO CORP-Financials weigh on spreads; primary market rush

Reuters: [2008-05-06 17:40:00]

By Maya Thatcher

LONDON, May 6 (Reuters) - Poor quarterly performances at Fannie Mae <FNM.N> and Swiss Re <RUKN.VX> weighed on European credit spreads on Tuesday, as investors were kept busy with a torrent of fresh bond supply.

By 0520 GMT, the Markit investment-grade iTraxx Europe index <ITRAC5EA=GFI> was at 72.5 basis points, according to Markit data, 8.25 basis points wider versus late on Monday.

The iTraxx Crossover index <ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, was 26 basis points wider at 423 basis points.

Despite the widening spreads, a trader said the market was holding itself well.

"The market has been performing very strongly because, with all the bad news, we're still very tight," the trader said. "Last year, whenever we had such news, spreads went much wider."

The primary bond market saw one of its busiest issuance days this year, with a deluge of fresh supply coming from drugmaker GlaxoSmithKline <GSK.L>, as well as units of German carmaker Volkswagen <VOWG.DE>, Britain's National Grid <NG.L> and U.S. conglomerate General Electric <GE.N>.

But UniCredit (HVB) credit strategist Philip Gisdakis said the rush of new issuance should not be taken as a sign the worst of the credit crisis was over.

"There is nothing that really points to an end to the credit crisis," he said.

"How can you come to the idea that senior management across the world are laying off huge amount of staff and yet the crisis is over? That's ridiculous.

"I would love to be wrong with my view ... (but) we have to be honest and look at what's going on."

UBS <UBSN.VX> said it would cut 5,500 jobs, sending five-year credit default swaps on the Swiss bank 4.5 basis points wider at 57 basis points, according to Markit data.

TAKING ADVANTAGE

GlaxoSmithKline <GSK.L>, the world's second-biggest drugmaker, has mandated Citigroup, JP Morgan and Lehman Brothers to manage the sale of a $6 billion, three-tranche bond. The deal will consist of five-year, 10-year and 30-year bonds, with the proceeds used for the repayment of debt, dividends, working capital and share repurchases.

Volkswagen Credit Inc USA has set final terms on the sale of its three-year, 1.25 billion euro ($1.9 billion) bond.

Guidance for the bond, which will be priced later on Tuesday, was refined to mid-saps plus 75 basis points from an initial range of 75 to 80 basis points.

Also, a unit of British utility National Grid priced a 30-year, 300 million pound ($589 million) bond.

Gisdakis said borrowers were taking advantage of relatively calmer spreads.

"There's a window of opportunity and (element of) 'let's step in and get some funding before levels deteriorate again,'" he said.

Elsewhere, Irish building materials group CRH Plc <CRH.I> <CRH.L> has hired banks to arrange a series of bond investor meetings in Europe next week, starting in the Netherlands on May 13.

Sovereigns also grabbed a slice of the new issuance pie with Spain and Greece announcing bond sales.

Greece has set revised guidance for its 10-year, 4 billion euro bond at 55 basis points over Bunds. Demand has been strong, with orders of more than 7 billion euros, a source at Greece's public debt agency said.

Spain is preparing a 5-year benchmark dollar bond, the second time the nation has tapped the syndicated bond market this year. (Reporting by Maya Thatcher; Editing by David Hulmes)

((maya.thatcher@reuters.com; +44 207 542 9202; Reuters Messaging: maya.thatcher.reuters.com@reuters.net))

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EURO CORP-Credit spreads widen, Swiss Re loss hurts

Reuters: [2008-05-06 11:16:00]

By Natalie Harrison

LONDON, May 6 (Reuters) - European credit derivative indexes widened on Tuesday, weighed down by lower equities and losses at financials as reinsurer Swiss Re <RUKN.VX> said first-quarter net profit dropped by half.

Swiss Re, the world's biggest reinsurer also made fresh credit writedowns of 819 million Swiss francs ($776.3 million).

Unlike other reinsurers, Swiss Re has been hit hard by the credit crisis, notching up writedowns of 1.2 billion francs in November in its financial services unit, which creates products to transfer risk to capital markets [ID:nL06701702].

UBS AG <UBSN.VX> was also in the spotlight after the Swiss bank said it will cut 5,500 jobs, or almost 7 percent of its workforce, as Europe's biggest subprime casualty reverses a rapid expansion into investment banking.

Five-year senior credit default swaps on Swiss Re and UBS were each about five basis points wider at 85 and 57.5 basis points respectively, a trader said.

In index trading, the investment-grade Markit iTraxx Europe index <ITRAC5EA=GFI> was at 70 basis points by 0850 GMT, according to Markit data, 5.75 basis points wider versus late on Friday.

The iTraxx Crossover index <ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, was at 417 basis points, about 20 basis points wider. The index had rallied hard last week, moving below the 400 mark on Friday for the first time since January, boosted by U.S. jobs data which were not as bad as expected.

"I think the move in the indexes is overdone. The consensus is that we are too tight," said Jeroen van den Broek, a credit strategist at ING.

"There are still concerns about ResCap, Countrywide and Ambac in the U.S. which doesn't give us a great deal of comfort and we're in the midst of the earnings season so there are plenty of volatile drivers around," he said.

U.S. stocks, for example, fell overnight on worries that Bank of America Corp <BAC.N> may renegotiate the price it is prepared to pay for troubled lender Countrywide Financial Corp <CFC.N> or walk away from the deal altogether. For details, click on [ID:nBNG173851].

SIEMENS SCHULDSCHEIN DEAL

Elsewhere, the primary market saw further action. Greece is planning a 10-year benchmark deal while a unit of GE Capital Corp is planning a 7-year euro benchmark bond, lead managers on those deals confirmed.

German engineering company Siemens <SIEGn.DE> was also in focus. It plans to sell a two-tranche minimum 500 million euro ($772.6 million) Schuldschein deal, a source familiar with the sale said.

Guidance on the five-year tranche has been set at mid-swaps plus 55 to 75 basis points while guidance on the 7-year deal has been set at mid-swaps plus 70 to 90 basis points [ID:nL06907372].

"I think we'll stay supply focused," said van den Broek. "Siemens is interesting. Deals in the Schuldschein market are not usually done in this kind of size for corporates so this is a novelty."

In the cash bond market, the FTSE Euro Corporate Bond Index <EUCRAVSPG=> showed investment-grade corporate bonds in euros yielding an average 114.0 basis points more than similarly dated government bonds, 1.5 basis points lower on the day.

In underlying government bond markets, the yield on the interest rate sensitive two-year Schatz <EU2YT=RR> was 3.815 percent, 0.7 basis points higher on the day. The 10-year Bund <EU10YT=RR> yielded 4.152 percent, 0.9 basis points down.

The 10-year euro swap rate <EURAB6L10Y=> was 4.596 percent.

(Reporting by Natalie Harrison; editing by Rory Channing)

((natalie.harrison@reuters.com; +44 207 542 2687; Reuters Messaging: natalie.harrison.reuters.com@reuters.net))

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Keywords: MARKETS BONDS EUROCORP

EURO CORP-Credit spreads edge wider, UBS in spotlight

Reuters: [2008-05-06 08:51:00]

LONDON, May 6 (Reuters) - European credit spreads drifted wider early on Tuesday as shares weakened, but smaller-than-expected job cuts at Swiss bank UBS <UBSN.VX> brought some relief.

By 0630 GMT, the investment-grade Markit iTraxx Europe index <ITRAC5EA=GFI> was at 66.75 basis points, according to Markit data, 2.5 basis points wider versus late on Friday.

The iTraxx Crossover index <ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, was at 408.5 basis points, 10 basis points wider after falling below the 400 mark on Friday for the first time since January, boosted by U.S. jobs figures.

U.S. non-farm payrolls data on Friday showed 20,000 jobs were lost last month, far below the 80,000 which economists polled by Reuters had predicted.

"We're at the top of the ranges for the indexes," said a trader. "The payrolls data was miles better than expected. That sparked the last leg of the tightening but equities sold off yesterday so I would expect to go wider from here."

UBS was also in the spotlight after it said it would cut 5,500 jobs, or almost 7 percent of its workforce, in the wake of the subprime credit crisis [ID:nL06689840].

Five-year credit default swaps on UBS were unchanged at 52.5 basis points, a second trader said, while the iTraxx senior financials index was 1 basis point wider at 54 basis points.

"This will be credit positive for UBS as there was talk that the job cuts could be as much as 10 percent," the second trader said.

European shares ended weaker on Monday, stalling a three-day winning streak.

U.S. stocks also fell on worries that Bank of America Corp <BAC.N> may renegotiate the price it is prepared to pay for troubled lender Countrywide Financial Corp <CFC.N> or walk away from the deal altogether. For details, click on [ID:nBNG173851].

(Reporting by Natalie Harrison; editing by Rory Channing)

((natalie.harrison@reuters.com; +44 207 542 2687; Reuters Messaging: natalie.harrison.reuters.com@reuters.net))

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EURO CORP-Credit spreads tighter on U.S. jobs, banks' plan

Reuters: [2008-05-02 18:17:00]

By Maya Thatcher

LONDON, May 2 (Reuters) - The benchmark Markit iTraxx Crossover index dropped below 400 basis points on Friday for the first time since January as investors took comfort in data which showed U.S. employers shed far fewer jobs than expected in April.

By 1540 GMT, the Crossover index <ITCRS5EA=GFI>, which is made up of 50 mostly "junk"-rated credits, was at 398.5 basis points, according to Markit data, 14.5 basis points tighter versus late on Thursday.

The index swung widely throughout the session, trading between 415.5 basis points and 391 basis points before and after the jobs figures.

U.S. non-farm payrolls data showed 20,000 jobs were lost last month, a far cry from the 80,000 economists polled by Reuters had predicted. [ID:nN02551119]

"For the moment, it looks like the data is showing that we're going to have a long but shallow recession ... rather than deep," said Societe Generale credit strategist Suki Mann.

The investment-grade iTraxx Europe index <ITRAC5EA=GFI> was 3.5 basis points tighter at 64 basis points.

The continual setting of fresh series lows has left some strategists debating if the recent pronounced rally in spreads has run its course.

"Credit spreads are priced close to perfection with little to no uncertainty premium," credit strategists at Barclays Capital wrote in a note to clients.

"While spreads can stay rangebound/tighter in the short term, we expect uncertainty premiums to rise eventually, which can realistically drive spreads to 175 to 200 basis points before year-end."

But for the immediate future, one trader in London said he sees the market tightening further.

"It's a very bullish market," he said. "There's not really much demand to buy protection ... people have realised that this is a pretty unstoppable train at the moment, and if they've already got protection it's cost a lot of money".

The trader said the rallying indexes had pushed the vast majority of single names tighter, including British retail giant Tesco <TSCO.L>, 6 basis points tighter at 26 basis points.

Also supporting the move tighter in spreads was further efforts by central banks to ease illiquidity through large cash injections. [ID:nL02844155]

But some doubted the long-term benefits of the plan.

"In spite of all the central bank efforts so far, the situation in money markets still isn't resolved," Sharma said.

"That said, it's very positive for the system in the sense that, if I'm a credit investor, I'm very comfortable with financial credit risk. If I'm a deposit holder, I'm comfortable with the financial situation." ((maya.thatcher@reuters.com; +44 207 542 9202; Reuters Messaging: maya.thatcher.reuters.com@reuters.net))

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Keywords: MARKETS BONDS EUROCORP

EURO CORP-Credit spreads reverse early gains; payrolls eyed

Reuters: [2008-05-02 10:06:00]

By Richard Barley

LONDON, May 2 (Reuters) - European credit spreads reversed an early move tighter as investors and traders eyed key U.S. jobs data due later in the session, but activity was very thin due to recent and imminent market holidays in Europe.

By 0750 GMT, the investment-grade Markit iTraxx Europe index <ITRAC5EA=GFI> was at 67.25 basis points, according to Markit data, 0.25 basis points lower versus late on Thursday.

The iTraxx Crossover index <ITCRS5EA=GFI>, made up of 50 mostly "junk"-rated credits, was 1 basis point tighter at 413 basis points. The index had traded close to 400 basis points early in the session.

"It's very thin today ... there's almost no client enquiries," said a trader, with many European countries having enjoyed a market holiday on Thursday and a holiday looming in the UK on Monday.

He added that the lack of activity made it difficult to predict any trend for the session. "We could take another swing tighter, or wider, or maybe we stay where we are. It's pretty much uncertain."

"Everybody's waiting for the numbers from the U.S. this afternoon," he said.

U.S. non-farm payrolls data for April is due for release at 1230 GMT, with economists polled by Reuters forecasting a loss of 80,000 jobs.

Some analysts are warning that the recent move tighter in credit spreads has overshot and cannot be justified.

"The 'it is over' sentiment continues to dominate markets, with stocks and credits moving hand in hand to mild recession levels, completely ignoring all the risk factors which are still there," analysts at UniCredit (HVB) said in a note to clients.

"This is pretty risky," they wrote.

"This is exactly what we experienced twice in 2007. The iTraxx tightened in dramatically and investors proclaimed the end of the crisis," UniCredit said. "This was a mistake, and currently, it looks like markets are making the same mistake a third time."

In the cash bond market, the FTSE Euro Corporate Bond Index <EUCRAVSPG=> showed investment-grade corporate bonds in euros yielding an average 117.0 basis points more than similarly dated government bonds, unchanged on the day.

In underlying government bond markets, the yield on the interest rate sensitive two-year Schatz <EU2YT=RR> was 3.738 percent. The 10-year Bund <EU10YT=RR> yielded 4.127 percent, 0.6 basis points lower.

The 10-year euro swap rate <EURAB6L10Y=> was 4.578 percent. (Reporting by Richard Barley; Editing by David Cowell) ((richard.barley@reuters.com; +44 20 7542 7770; Reuters Messaging rm://richard.barley.reuters.com@reuters.net))

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