LONDON, June 26 (Reuters) - International bond markets were biding time on Thursday with all eyes on U.S. auto maker General Motors' huge corporate bond sale, which overshadowed a vital turnaround plan from Italy's Fiat.
The FTSE Euro Corporate Bond Index showed investment-grade corporate bonds in euros yielding an average 81.3 basis points more than similarly dated government bonds at 1550 GMT, 1.1 basis points less on the day.
"The corporate credit markets were transfixed by the new multi-tranche/currency deal from GM/GMAC, with spreads hardly changed for most sectors (and) most market participants happy to sit on their hands until the dust settles," said Cantor Fitzgerald credit strategist James McKay in a client note. General Motors Corp. and its finance unit GMAC on Thursday launched the $6.0 billion portion of a jumbo bond sale, setting yields at the tight end of earlier price guidance, market sources said. General Motors will sell 10-, 20-, and 30-year bonds, while GMAC will sell three-year notes.
GM is also expected to sell 2.5 billion euros and GMAC 3.0 billion euros of bonds, while another unit GM Nova Scotia is expected to sell 350 million of sterling of 12-year bonds and 250 million sterling of 20-year bonds.
"We remain somewhat concerned that "hot money" could quickly flow out of the deal over coming days, a factor that -- along with the weak govvie markets -- could weigh on sentiment prompting wider spreads over coming days," McKay said.
Also in the auto sector, Italy's Fiat announced plans to slash thousands more jobs and raise 1.8 billion euros in fresh capital through a share issue in the latest blueprint aimed at returning it to solid profits in 2006.
Fiat's short-dated bonds rose in value after the announcement, but insurance against default became more expensive as analysts said there were still questions over the group's future.
Credit rating agency Standard & Poor's said it may cut Fiat's BB+ long-term corporate credit rating, citing an increased likelihood that the cash-draining Fiat Auto division will remain in the group.
KfW SELLS 5.0 BILLION EURO BOND
Germany's state development bank Kreditanstalt fuer Wiederaufbau (KfW) [KFW.UL] sold the eighth 5.0 billion euro global bond from its Euro Benchmark programme.
The deal priced to give a yield of 13.5 basis points over Bunds, lead managers BNP Paribas, Dresdner Kleinwort Wasserstein and Morgan Stanley said.
The order book for the deal, which was launched on Wednesday, contained a total 295 orders totalling 6.0 billion euros, KfW said in a statement. Around 47 percent of the paper was placed in Germany with demand from the banking sector expected to reach around 51.5 percent of the deal, KfW said.
"Considering the current market situation we are very satisfied with the pricing of our eighth Euro Benchmark Bond, said Gerhard Lewark, KfW's treasurer.
"We started the price talk with a spread range of 13 to 16 basis points over the underlying bund. We are happy to end up in this volatile environment with 13.5 basis points which is at the lower end of this range."
KfW said previously it would require funding of between 45 and 50 billion euros in 2003, at least 15 billion euros of which would be issued under the Euro Benchmark Programme.
KfW's debt carries the explicit guarantee of the Federal Republic of Germany and shares its triple-A ratings.
Elsewhere, Deutsche Bahn Finance BV offered a 500 million euro 12-year bond with a spread of 61 basis points over Bunds, lead managers Banca IMI and DZ Bank said. The transaction will be guaranteed by the German rail operator Deutsche Bahn [DBN.UL].