US corporate bond spreads steady

US corporate bond spreads were steady on Friday while stocks whipsawed after a brokerage's upgrade of General Electric Co's stock offset a poor US jobs report. Spreads in the cash market were generally steady across all sectors with only small pockets of widening. Meanwhile, the cost of protecting corporate debt with credit default swaps ended the week on a tightening trend.
The main index of investment-grade credit default swaps tightened to 103 basis points from 104 basis points at Thursday's close, according to Markit Intraday. Many investors were content to sit tight on Friday, with some preparing for an expected build-up of the new issue calendar next week. While Friday's jobs report had little immediate impact on the corporate bond market, it did indicate to some that this year's technical rally may soon turn around due to a lack of fundamental support.
David James, a vice president of fixed-income at Wall Street Access in New York, said that while the recession has ended, the jobs report shows that "people have to stop and take a breath and figure out where we are in the (business) cycle."
"The technicals have gotten way ahead of the fundamentals, and you could see some back-up" heading into year-end, he said. Bob Gorham, managing director and head of investment-grade bond trading at Broadpoint Capital in New York, agreed. "One of two things is going to happen: the economy is going to catch up to the markets, or the markets are going to come back down to the economy."
The US jobless rate unexpectedly jumped to a 26.5-year high of 10.2 percent last month. The Labour Department said that employers cut 190,000 jobs in October, more than the 175,000 markets had expected but fewer than the 219,000 lost in September. The jump to a double-digit unemployment rate also raised longer-term concerns among some investors that politicians may overreact heading into next year's mid-term congressional elections.
"A 10-plus percent unemployment rate, which is not likely to fall below that in next few months, raises the concern for a possible 'stimulus two' package," said Gorham. In Friday's primary market, Bank of New York Mellon launched a $1.25 billion two-part debt sale, said IFR, a Thomson Reuters service. The sale is expected to include $750 million of five-year notes yielding 83 basis points over comparable US Treasuries and $500 million of 10-year notes yielding 112 basis points over Treasuries, IFR said.