US corporate bonds flat

Spreads on US corporate bonds were unchanged to slightly tighter on Friday and activity was slow as a week of scant new issuance curtailed turnover in the secondary market. Spreads will likely remain range-bound for the near term because investors view the market as fairly valued and are sticking with their current holdings, strategists said. "They're not making a lot of big bets," said Rizwan Hussain, credit strategist for Morgan Stanley.
"They're making a lot of technically oriented trades, whether in terms of the shape of the curve or relative value swaps, picking up a few basis points from one name to another."
Though the risk for serious credit deterioration remains low, investors also believe the bull phase of the economic recovery is winding down, with a slower rate of growth expected for the rest of 2005, Hussain said.
"There's a lid to the enthusiasm for credit," he said.
Among benchmark issues, General Motors Corp's 8.375 percent bonds due 2033 saw spreads tighten by about 0.09 percentage point to 3.66 percentage points more than Treasuries, according to MarketAxess.
Across the broader corporate bond market, spreads were flat to about 0.01 percentage point tighter, traders said.
Spreads narrowed for a second day on bonds of Loews Corp after the conglomerate on Thursday reported that fourth-quarter profit rose by more than a third.
Loews' 6 percent bonds due in 2035 yielded 1.41 percentage points more than Treasuries, about 0.07 percentage point tighter on the day, according to MarketAxess.
Companies sold just $5 billion of high-grade bonds this week, down from $7 billion last week and $10 billion the week before.
Sales were likely curtailed by blackout periods for earnings season and competition from a $51 billion auction of US Treasury debt, strategists said.
Total issuance this year is expected to decline from last year's record $689 billion because many companies took care of borrowing needs in 2004 to take advantage of low rates.
In other markets, prices of benchmark 10-year Treasuries fell 6/32, yielding 4.09 percent amid profit-taking and heavy new supply.