US corporate bond spreads were steady to slightly wider on Friday as Fannie Mae, the largest US home funding source, on Friday posted its fourth straight quarterly loss, sapping some demand for company debt.
The earnings report comes as home loan defaults increased and Fannie Mae said it would slash its dividend more than 85 percent and take additional steps to shore up its capital position. Overall corporate bond spreads were little changed to slightly wider, traders said.
The benchmark index of US high-grade credit default swaps ended stronger, after weakening earlier in the day, at 133 basis points, in from 134.5 basis points on Thursday, according to Markit Intraday. "We're seeing a trickling of widening with Fannie's results which were weaker than expected," a Morgan Stanley strategist said. "Overall we're little changed and generally financials are weaker."
The cost of protecting Fannie's debt with credit default swaps jumped to about 49.5 basis points, or $49,500 to insure $10 million of debt, from 48.55 on Thursday, according to data from Markit Intraday. Goldman Sachs' 6.15 percent notes due in 2018 weakened, as its spread widened about 9 basis points to 252 basis points, from 243 basis points on Thursday, according to MarketAxess.
Credit spreads also weakened this week after a big loss from insurer American International Group on Thursday raised concerns about the lingering credit crisis. Debt protection costs on debt insured by MBIA Insurance Corp fell on Friday, according to Markit Intraday, after the bond insurer said quarterly profit jumped sharply on gains from derivatives.
MBIA's five-year credit default swaps slipped to an upfront payment of 23.5 percent of the sum insured plus 500 basis points a year from 24.7 percent on Thursday, according to Markit Intraday. That means it would cost $2.35 million to insure $10 million of debt plus $500,000 a year.
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