US corporate bonds were mixed on Friday, with buying interest surfacing for higher-quality bonds while weaker names continued to languish, traders said. In the derivatives market, the main index of investment-grade credit default swaps widened by about 5 basis points to 253 basis points, according to data from Markit Intraday.
The tone in the high-yield market was weak, and few bonds were changing hands, a trader said. Stocks hit new 12-year lows on Friday as technology and banking shares sold off, but the Dow industrials and S&P 500 closed higher as surging oil prices lifted energy shares. Negative headlines about casinos and automakers, plus recent outflows from high-yield mutual funds and a spurt of new issues that soaked up some demand have also hurt the high-yield market, said Munck.
Spreads have been widening for about three weeks on high-grade corporate bonds, while high-yield spreads have widened for nearly a month. As of Thursday, high-grade corporate bonds were yielding about 581 basis points over Treasuries, the widest spread since early January, while high-yield spreads were about 1,859 basis points over Treasuries, the widest since December, according to Merrill Lynch data.
Spreads on General Electric Cos GE Capital finance arm tightened on Friday after analysts put out reports saying a recent sell-off was overdone. Barclays Capital changed its recommendation on GE Capital to "marketweight" from "underweight," saying a drop in bond prices has made them significantly more attractive.
Marketweight means GE Capitals debt is expected to perform in line with the broader credit market over the next six months. Spreads on GE Capitals 5.45 percent notes due in 2013 tightened by 39 basis points to 761 basis points over Treasuries, according to MarketAxess.
The cost of protecting GE Capitals debt with credit default swaps fell to 15 percent upfront from 16.5 percent upfront at Thursdays close, according to data from Phoenix Partners Group. The swaps also require 500 basis points in annual premiums.
The credit strategy group at Moodys Investors Service also said recent concerns about GE Capitals refinancing and asset quality risks were overdone. GE Capital has reduced its reliance on commercial paper and can count on support from GE, which remains profitable, the analysts said.
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