US corporate bond spreads ended unchanged on Friday, erasing early gains, and junk prices finished off their highs as stocks fell on expectations of more rate hikes by the Federal Reserve. Delphi said it reached an agreement with the United Auto Workers to offer buyouts to workers and expand its attrition plan to less senior workers.
Although favourable, the news was largely expected and failed to lift auto bonds. In the broad market, high-grade spreads narrowed a little in morning trading as stocks opened higher and some investors saw value in Thursday's closing spreads, said a trader in Chicago.
"The correlation continues between stocks and bonds," said Howard Greene, portfolio manager at John Hancock Funds in Boston. "Spreads are wider than they have been. The risk is skewed to them grinding wider."
Investment-grade spreads closed on Thursday at an average of 94 basis points, the widest point in 2006, and 5 basis points wider than at the end of April, according to data from Merrill Lynch.
The US corporate bond market has seen much new supply lately. Spain's Telefonica SA's Telefonica Emisiones sold $5.25 billion of debt on Friday, according to joint-lead manager Lehman Brothers.
The four-part debt sale included $1 billion of three-year notes with a coupon of 30 basis points over the three-month London interbank offered rate; $1 billion five-year notes at 105 basis points over US Treasuries; and $1.25 billion of 10-year notes to priced at 145 basis points over Treasuries.
The fourth part was $2 billion of 30-year bonds priced at 195 basis points over Treasuries. The size of the offering was increased and the deal was oversubscribed, according to dealers familiar with the matter.
The bonds traded narrowly mixed in the secondary market, which should be viewed as a success given the deal was priced on Friday when many players leave early for the weekend, a trader in Chicago said. In other markets, Treasury prices generally rose as the stock market's losses encouraged investors to seek a safe haven.
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