US corporate bond spreads tightened on Friday as a US labour report showed job creation was better than expected, easing concerns about a slowdown in economic growth and corporate ability to manage debt.
The US economy added 97,000 jobs in February, the Labour Department said on Friday, close to a median forecast of 100,000 in a Reuters poll. Corporate spreads narrowed between 2 to 4 basis points, traders said.
"People were braced for a negative jobs number, and we didn't get that," said Rizwan Hussain, a credit analyst at Morgan Stanley in New York. "It took away some of the fears." Junk bonds have recently recovered from concerns about subprime loans to high-risk borrowers and a global stock market rout sparked by a near 9 percent drop in China's main stock index at the end of February.
Total returns for high-yield bonds are now in positive territory for the month, at 0.17 percent, while year-to-date returns are 2.657 percent, the leading performance among US bonds, according to Merrill Lynch data.
Outflows from US junk bond mutual funds declined in the latest week as riskier assets recovered from a sell-off in late February, according to numbers released late on Thursday by AMG Data Services.
Junk bond outflows totalled $11 million in the week ended March 7, down from about $23 million the prior week, AMG Data reported. Spreads narrowed on Friday even amid concerns that subprime mortgage lender New Century Financial Corp may file for bankruptcy.
"It feels like people are saying generally that the economy is looking OK, but the market is watching the subprime issues," Hussain said. "People feel things got overdone." Despite the better tone in junk bonds, some new issues continued to struggle. Building Materials Corp of America pulled a $325 million bond sale, raising money in the loan market instead, market sources said.
On Tuesday, Dobson Communications Corp's American Cellular unit had pulled a $425 million bond sale and replaced it with loan financing, citing volatility in the bond market. "This market was just a little jumpy on the high-yield side," said Peter Andersen, portfolio manager for Dreman Value Management in Jersey City, New Jersey. "The bank debt market has a larger capacity to take on deals."
Trump Entertainment Resorts' bonds rose on speculation the company might be for sale, according to KDP Investment Advisors. Its 8.5 percent notes due in 2015 rose to about 100.9 cents on the dollar, up nearly one cent on the day, according to MarketAxess.
Comments
Comments are closed.