US corporate bond spreads narrowed in on Friday as the stock market rose and investors looked past Thursday's bombings in Madrid and focused on the relatively strong US corporate profit outlook.
The bombings killed at least 198 people and wounded about 1,500. Market reaction was swift, and corporate bond spreads widened, stocks fell and Treasuries rose as jittery investors sought safer investments.
But on Friday, corporate bond spreads narrowed, stocks rose, and investors sold Treasuries.
"When you have an event like the bombings in Madrid, fears get aroused. But then people realise that the fundamental impact to the economy is minimal," said David Novosel, head of investment-grade strategy at Banc One Capital Markets.
Oracle Corp posted an 11 percent increase in quarterly profits late on Thursday, bolstering investors' view that corporate health was strong.
Spreads on Ford Motor Co unit Ford Motor Credit Co's 7 percent notes of 2013 narrowed 0.11 percentage point, or 11 basis points, to 2.58 percent, according to MarketAxess.
Corporate bond spreads have been trending wider since late January.
That widening has been particularly dramatic since last Friday, after a report showed payrolls in February grew by much less than expected. Treasury yields dropped to their lowest levels in eight months in the sessions after the report. Investors began to question the extent to which they understand the risks financial markets, and traded into safer credits and safer bond sectors like Treasuries.
Corporate bond spreads on Thursday reached their widest level since late December, according to Merrill Lynch indexes. The spread on the US corporate master index widened 1 basis point to 95 basis points, its widest level since December 24.
A slightly weaker-than-expected preliminary March consumer sentiment report from the University of Michigan on Friday morning had little impact on spreads. Consumer spending has been a crucial prop to the economy, and mounting consumer pessimism is unlikely to boost consumer spending.
But assigning too much weight to the consumer sentiment survey is generally difficult, because the correlation between the survey and spending has been relatively low.
Bankrupt utility Pacific Gas and Electric Co, a unit of PG&E Corp, on Friday said it will offer $6.7 billion in first mortgage bonds as part of its plan to emerge from Chapter 11 bankruptcy protection.
The bond offering comes amid a relative dearth of corporate bond sales and should garner ample demand, investors said.
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