LONDON, May 22 (Reuters) - European corporate bonds rose slightly in price on Thursday, stemming a recent slide, while issuance was led by convertible bonds.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 93.8 basis points more than similarly-dated government bonds at 1520 GMT, 0.4 basis points lower on the day.
Auto bond prices rose, with yields falling on bonds from Ford , General Motors and Volkswagen .
"The one real performer is Volkswagen, where we've seen some real client buying; they've come in five basis points, and dragged everything else with them," said a trader. But trading was in general light, with hedge funds being the most active clients, he said.
Leading the corporate news, Britain's dominant telecoms group BT Group Plc delivered strong full-year profits and a better-than-expected dividend on Thursday, while also putting some fears to rest about its $10.4 billion pension fund deficit.
Under Britain's FRS17 accounting standards yet to be used in practice, BT reported an end-March 6.3 billion pound ($10.4 billion) shortfall in one of the UK's two largest pension funds, which has been hammered by three years of declining stocks.
But under the less stringent Funding Valuation from an independent actuary, which determines how much cash BT must pay to top up the fund, the pension deficit was 2.1 billion pounds on December 31.
The company's 7.125 percent euro bond due February 2011 improved after the results announcement, with the yield tightening six basis points to 129 basis points over government debt at 1500 GMT, according to Reuters data.
BT's net debt fell to 9.6 billion pounds from 13.7 billion last year, hitting another target of sub-10 billion pound debts.
The phone giant also tried to address persistent rumours it was planning to buy back mobile phone service offspring mmO2 . Chief executive Ben Verwaayen repeated his belief in simply buying services that can be packaged for clients. "You don't need to own the mobile operator to be able to bundle for your customers," Verwaayen said.
Ratings agency Standard & Poor's on Thursday affirmed BT's A- rating with a stable outlook, although it said the group's exposure to the pension scheme was a "key financial risk."
NEXT SELLS, HENKEL AWAITED
In the primary market, Britain's third-largest clothes retailer, Next Plc sold a 300 million pound 10-year bond. The bond pays a 5.25 percent coupon and yielded 127 basis points more than the five percent UK gilt maturing in 2012 at launch. Next's plans to repurchase shares, in part via this bond issue, thus increasing leverage, led Fitch Ratings to downgrade the company to BBB from A- on May 13. Barclays Capital and Royal Bank of Scotland managed the sale.
There was also a flurry of convertible issuance totalling 3.2 billion euros from German giant Siemens AG , French holding company Artemis and Wendel Investissement.
German consumer goods firm Henkel is planning to price its inaugural 750 million euro 10 year bond at a spread of between 48-53 basis points over swaps, sources said.
The bond sale is continuing despite S&P's move to cut Henkel's senior unsecured debt rating to A+ from AA-.
"The downgrade reflects Henkel's increasing challenges in its competitive environment, margins that are below peers' averages, and pensions-adjusted financial ratios that are not commensurate with the previous ratings," S&P credit analyst Andre Rashid said.
Henkel is rated A1 by Moody's Investors Service. Lead managers of the Henkel bond are Citigroup, Deutsche Bank, Dresdner Kleinwort Wasserstein and HSBC.