Corporate bonds bounced back from a two-month low in Europe on Tuesday, with hard-hit insurers and vehicle makers leading the modest comeback.
News that Marsh McLennan, the world’s largest insurance broker, would not face a criminal prosecution boosted the insurance sector and vehicle manufacturers recovered some of last week’s losses as investors got the bad news at arm’s length.
Falling oil prices also boosted equities and corporate bonds. The Iboxx corporate bond index moved slightly tighter after it widened 4 basis points to 57.5bp over the benchmark in October. The index remains 7bp tighter since the start of July but aggregate corporate yield spreads hit their widest levels since August 27 on Monday, according to data from Lehman Brothers.
Spreads in the insurance sector tightened, with Munich Re 2023s narrowing by 3bp on the day and about 10bp since the widest levels last week. The yield on Zurich Financial’s 2023 issue closed 4bp tighter and 112bp/110bp over the Bund.
The vehicle sector also recovered slightly after being forced sharply wider by concerns about market heavyweights Ford and General Motors in the past two weeks. Weak car sales, concerns about pension and healthcare liabilities and credit rating downgrades have weighed on sentiment following GM’s third-quarter earnings two weeks ago.
On Tuesday , GM’s 2033 issue tightened 3bp to 317bp/315bp over the 30-year Bund and the 2013s narrowed 5bp to 219bp/216bp over the German government bond. The two bonds have widened by more than 35bp in the past fortnight. The Ford 2009 bond was unchanged at 173bp/168bp over Bunds.
The better bid also boosted the telecoms sector. The 30-year bonds from France Telecom and Olivetti, which controls Telecom Italia, tightened by 1bp and 2bp, respectively.
But despite the small resurgence in bond prices, investors appeared uncertain about the future as the US presidential election and key economic data loomed. Next week, non-farm payrolls and monthly auto sales figures will give investors an update on the state of the US economy, and its struggling vehicle manufacturing industry.
“The market has no clear sense of where it is going next,” said Suki Mann, at SG CIB. “It will likely stay range-bound for the next few sessions. We are unlikely to see the tightest levels of the year again.”