US corporate bond spreads ended wider on Friday, hurt by a lackluster performance in stocks and worries that rising consumer prices will prompt the Federal Reserve to raise interest rates soon.
Junk bonds ended mostly unchanged after opening about one point lower on the heels of a $2.1 billion outflow from junk bond funds, the second biggest outflow ever, according to AMG Data Services.
The junk bond market firmed after investors decided the selling was overdone, but it could still face headwinds in the days ahead, traders said. "Clearly we're in a higher interest rate environment or the market believes we are, so I really don't foresee the market rallying a lot," said Steve Hornstein, head trader for Pinewood Capital Partners in Greenwich, Connecticut.
In the high-grade arena, spreads, the extra yields corporate bonds pay over US Treasuries, widened 0.01 to 0.02 percentage point overall. Automakers ended about 0.03 percentage point wider after opening about 0.10 percentage point wider, traders said.
Interest rate worries mounted following a report that consumer prices outside the volatile food and energy sectors rose more than expected in April after a big jump in March.
Bonds of Salton Inc recovered a touch on Friday after the maker of kitchen and personal care appliances said it hired Ernst & Young Corporate Finance LLC to help negotiate with lenders and slash costs.
Salton's 12.25 percent notes due in 2008 were bid around 55 cents on the dollar, up from 51 late on Thursday, a trader said.
US Treasuries rose as bargain-hunters stepped in after several weeks of selling. Benchmark Treasury 10-year notes rose 16/32, yielding 4.78 percent.
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