High-grade US corporate bonds mostly stable

Spreads in the high-grade US corporate bond market were mostly stable on Friday, while Dura Automotive's prices slipped on poor earnings and credit rating downgrades.
Dura, a parts supplier to Ford Motor Co, General Motors Corp and DaimlerChrysler, has suffered from production cuts at the automakers and high raw material costs. Analysts do not expect conditions to improve much in the next quarter.
"Lower production levels at Ford and GM in the third quarter and rising steel costs will likely result in a further deterioration in results in the third quarter," wrote Kip Penniman, Jr., an analyst at KDP Investment Advisors in Montpelier, Vermont.
Both Moody's Investors Service and Standard & Poor's cut Dura's credit ratings deeper into junk territory on Friday. The highly speculative credit ratings were also given a negative outlook, indicating they could be cut again.
Dura's 9 percent note due 2009 slipped to 27.25 cents on the dollar, from 27.75 cents on the dollar, according to MarketAxess. The auto parts maker's 8.625 percent due 2012 fell to 76 cents on the dollar, from 76.5 cents on the dollar.
High-grade spreads during July have ranged around 97 basis points to 98 basis points over US Treasuries, according to data from Merrill Lynch.
"So far earnings have been solid, the default rate is low and the economy is treading along," said Mirko Mikelic, a senior portfolio manager and analyst at Fifth Third Asset Management in Grand Rapids, Michigan. Given the current market environment, spreads should not widen, Mikelic added.
On a total return basis for the month, corporates have returned 1.06 percent, better than most fixed income asset classes except mortgage-backed assets and US Treasury inflation-linked assets, the Merrill Lynch data showed.
In other markets, US Treasury debt prices rallied as a report showing slower economic growth bolstered expectations the Federal Reserve will end its campaign of interest rate increases. The benchmark 10-year note rose 10/32 for a yield of nearly 5 percent.