US corporate bond spreads held firm on Friday as stocks rebounded on easing inflation concerns, while bonds of Movie Gallery Inc slumped on disappointing earnings. Movie Gallery's debt prices fell after the No 2 US video rental chain posted a quarterly loss versus a year-ago profit due to a charge and lower revenue.
The company's 11 percent bond maturing in 2012 - the session's most actively traded issue - fell more than 3 cents on the dollar to 82.813 cents, according to MarketAxess. Movie Gallery has been losing customers to Netflix Inc and Blockbuster Inc's online service, but said it is continuing to pursue initiatives to cut expenses and reposition the company.
Spreads in the broader US corporate bond market were unchanged to slightly firmer, helped in part by a recovery in stocks from their steepest fall in two months on Thursday. "It's very difficult for the corporate bond market to develop a real head of steam," said Scott MacDonald, director of research at Aladdin Capital in Stamford, Connecticut.
The volatility in US stocks and corporate bond prices after February 27, due partly to a fall in Chinese shares, "should have been a watershed, but it wasn't and largely because there's just way too much liquidity out there," MacDonald said.
On the other hand, worries about leveraged buyouts and other shareholder friendly actions are putting a lid on any potential spread tightening in corporate bonds, he said. Average corporate bond spreads have stayed at 94 basis points over US Treasury bonds for the past nine sessions, Merrill Lynch data shows.
"The market is probably going to move sideways through the course of the year," with spreads staying in a specific range, MacDonald said. The junk bond market was firm in quiet trading, according to research firm KDP Investment Advisors.
In other markets, stocks rebounded as signs that inflation is in check reassured investors the economy was slowing in an orderly way, boosting optimism the Federal Reserve could have room to lower interest rates. Higher energy costs pushed US producer prices up 0.7 percent in April, but the core rate, which excludes volatile food and energy costs, was unchanged from March.
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