The cost of insuring against a default by cigarette maker BAT fell after a US appeals court on Friday rejected the government's bid to force cigarette makers to pay $280 billion in past profits.
"They tightened about ten basis points this morning, but is down seven basis points at 41 basis points," said a credit default swap trader in London.
This means it costs 41,000 euros to insure 10 million euros of BAT debt against default.
But the cost of default insurance on EMI jumped after the British music giant warned of lower-than-expected music sales and profits on Monday, blaming delays in the release of key albums and sending its share price plunging.
"There was some hope their problems were over but that is clearly not the case," said a trader in London. "The music industry's problems are not finished and we may see a downgrade of EMI's rating."
Moody's Investors Service rates EMI at Ba1, one notch below investment grade, while Standard & Poor's rates it BBB-, the lowest investment grade. Any rating move would probably come from Moody's, the trader said.
Five-year credit default swaps on EMI were trading 12 basis points wider at 1420 GMT at 124 basis points, after earlier trading as wide at 135 basis points, the trader said. The price means it costs 124,000 euros to annually insure 10 million euros of EMI debt against default.
In the high-yield market German cable company iesy is expected to price its planned 215 million euro 10-year high-yield bond later on Monday to give a yield of around 8.75 percent, a banker familiar with the deal said last week.
iesy is issuing the bond, which has been rated CCC+ by Standard & Poor's and an equivalent Caa1 by Moody's Investors Service, as part of a wider refinancing to replace existing debt and part fund the possible acquisition of larger rival ish, the banker said.
In the asset-backed market, mortgage lender Southern Pacific, owned by investment bank Lehman Brothers, plans to sell a multi-currency UK mortgage-backed bond worth about 700 million pounds this week, a source close to the deal said.
Lehman Brothers is the bookrunner of the transaction. Southern Pacific Mortgage Ltd and Southern Pacific Personal Loans Ltd originated the pool of home loans backing the bond sale.