US corporate bonds eased on Thursday ahead of the Independence Day long weekend as the battered auto sector continued to weigh on the market. While the closely-watched US payrolls data for June was not as weak as some feared, worries about more write-downs in the financial sector and fears of bankruptcy in the auto sector pressured credit markets.
"After payrolls there was some residual trading, some of the same themes of the week dominated. Autos were wider," said Christopher Towle, director of high yield and convertible securities at Lord Abbett.
Merrill Lynch on Wednesday said that bankruptcy is "not impossible" for General Motors' if the car market continues to slump, sending the automaker's stock and bond prices lower even though its said it has sufficient liquidity to ride out the industry downturn in 2008.
GM's 7.2 percent notes due in 2011 extended their recent slide on Thursday, slipping to a five-year low of 69.5 cents on the dollar from 71 cents yesterday, according to MarketAxess. The benchmark 8.375 percent bonds due in 2033 were unchanged at 56 cents on the dollar, their record low, according to MarketAxess. The main index of investment-grade credit default swaps widened by about 1 basis point to about 147.9 basis points, according to Markit Intraday.
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