US corporate bond spreads on Friday widened a second straight session on lingering impact of auto debt downgrades and heightened uncertainty in the benchmark Treasury market, market participants said. High-grade yield premiums likely rose by 2 basis points on average, which was mainly driven by the bid side of the market drying up, a trader in Chicago said. "Buyers have been paid to wait so they are doing that more and more," the trader said. Bonds issued by General Motors Corp and Ford Motor Co ended mostly lower on Friday after Standard & Poor's cut both companies to junk status on Thursday.
GM bonds due 2033 with a 8.375 percent coupon fell more than 4 points to 74.5 cents on the dollar to yield 11.42 percent, according to MarketAxess.
Meanwhile, bonds issued by Ford's finance arm Ford Motor Credit Corp due 2013 with a 7 percent coupon fell by more than 3 points to 87 cents on the dollar to yield 9.26 percent, according to MarketAxess.
"We've had a lot of commotion this week in the Treasury market and then you throw the GM and Ford downgrades on top," said Harold Woolley, a managing director and taxable portfolio manager at Bessemer Trust in New York.
In other markets, Treasuries fell as a burst of employment in April and upward revisions to prior months startled investors into thinking the Federal Reserve would keep raising interest rates.
Non-farm payrolls jumped 274,000 in April, well above forecasts of 170,000, while employment in the previous two months were revised up by a total 93,000.
The report capped a volatile week for Treasuries, that included a missing sentence from the Federal Reserve policy statement and talk of a return of 30-year bonds.
Ten-year Treasury notes were quoted down 26/32 to yield 4.26 percent.
Meanwhile, junk bond prices declined on Friday on concerns higher rates will weaken the credit quality of issuers and draw cash out of the junk market right when GM and Ford are moving into the market, the trader in Chicago said.
Cash has been fleeing the junk bond sector for sometime.
US junk bond funds reported about $400 million of net outflows in the week ended May 4, extending the recent string of outflows, AMG Data Services reported late Thursday.
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