LONDON, July 23 (Reuters) - Yield spreads tightened still further in the European corporate bond markets on Wednesday as company results grabbed traders' attention, with Volvo saying second-quarter earnings were better than expected.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 74.7 basis points more than similarly-dated government bonds at 1510 GMT, 1.5 basis points less on the day.
Sweden's Volvo and Scania kicked off the European auto reporting season on Wednesday, with bonds responding positively.
"We're tighter today. General Motors in euros is five basis points tighter, everything else is a couple of basis points in," said one trader.
Thursday brings more major results announcements. One of the big three global carmakers, DaimlerChrysler , tops the auto agenda, with Renault and Peugeot also unveiling earnings.
DaimlerChrysler's 6.125 percent euro-denominated bond due 2007 was around two basis points tighter ahead of the results, the trader said, bid at 125 basis points over German government bonds.
The market will be looking closely at how the operations of Chrysler in the U.S. have accepted the group, one strategist said. Early in June, the company said that competition in the U.S. had led Chrysler to a 1.0 billion euro operating loss.
Volvo beat expectations with its earnings, saying pre-tax profits rose to 2.04 billion crowns ($250 million) from 1.31 billion in the same period last year, ahead of a mean forecast of 1.76 billion in a Reuters poll.
The cost of insuring against a default by Volvo in the credit default swap market fell slightly following the results, while the company's bonds are largely illiquid.
Elsewhere, spreads were generally tighter despite a slight slip by major equity indices, a credit strategist said.
ISSUANCE THIN
New corporate issuance took something of a breather on Wednesday after the two billion euros in supply from Greek telecom OTE and German carmaker BMW on Tuesday.
Focus Wickes is still expected to price a 225 million pound equivalent mezzanine note sale on Wednesday, denominated in euros and sterling.
Banking sources said on Tuesday the sterling tranche will be priced to give a yield of 12 to 12.25 percent, with a cash coupon of 10 to 10.25 percent.
The euro tranche, to total a minimum 125 million euros, will be priced to give a yield of 75 basis points less than the sterling tranche, indicating a yield of 11.25 to 11.5 percent.
Royal Bank of Scotland and ING are managing the sale.