US corporate bonds spread widen

US corporate bond spreads widened on Friday as stocks slumped on a weak manufacturing report, while bonds of Ford Motor Co and General Motors Corp saw little trading despite the release of November auto sales data.
Home Depot Inc's bonds were the most heavily traded credit for a second straight session, with investors speculating that private equity buyers are circling the company. A published report quoted the company's chairman as saying the retailer was not pursuing such a deal.
The cost to insure Home Depot's debt for five years rose by around 13 basis points to roughly 25 basis points, or $25,000 per year to insure $10 million in debt.
Bear Stearns analyst Frank Henson said in a report that Home Depot's management has no reason to put the company up for sale, and the size of any potential transaction would be extremely large: three times the largest leveraged buyout to date.
In the auto sector, Ford and GM bonds traded thinly despite the release of data showing General Motors' sales rose 6 percent and Toyota Motor Corp surpassed Ford to take the No 2 spot in the US market.
Ford's bond prices were mixed after it reported a decline in monthly US auto sales and slashed its North American production forecasts yet again. Its 7.45 bond due 2031 fell 0.38 cent to 79 cents on the dollar in light trading, according to MarketAxess. Early in the session, US stocks slid after the Institute for Supply Management's manufacturing index unexpectedly fell below 50 for November, adding to worries the US economy may slow too quickly and pushing stocks lower.
High-grade bonds are "basically following equities, but very, very modestly," said Ira Jersey, US credit strategist at Credit Suisse in New York. Spreads in the high-yield bond market were unchanged, according to KDP Investment Advisors.
Investment-grade bonds have stayed in a range of 92 basis points and 95 basis points throughout November, according to Merrill Lynch data. The tightness of spreads, which analysts say will continue, is frustrating some investors. "There's no compensation for interest rate risk. There's no compensation for credit risk. There's great compensation for being defensive and short," said Bill Larkin, portfolio manager at Cabot Money Management in Salem, Massachusetts.
"Now is a good time to sell," he said. "That's what I'm doing.