A spurt of buying pushed yield spreads tighter on US corporate bonds on Friday after General Motors Corp reported surprisingly strong US vehicle sales for September, giving a lift to the auto sector.
Spreads, or yield gaps between corporate bonds and US Treasuries, tightened by about 0.02 percentage point overall, while some automakers' bonds tightened 0.03 to 0.06 percentage point.
While corporate spreads have been fairly steady for a week or so, yields have risen on benchmark US Treasuries, which pushes up the absolute yields on corporate bonds, attracting buyers.
"Investors that have cash to put to work have seen the backup in Treasuries as a buying opportunity," said Darin Feldman, portfolio manager at Aladdin Capital.
Automakers' bonds got a boost after GM said US vehicle sales soared 20.5 percent in September.
Ford Motor Co reported a 7 percent drop in US September sales, but spreads on its bonds tightened as well.
GM's 8.375 percent bonds due 2033 traded at a spread of 2.86 percentage points more than Treasuries on Friday, about 0.06 percentage point tighter on the day, traders said.
Ford's 7.45 percent bonds due 2031 traded at a spread of 2.69 percentage points more than Treasuries, about 0.03 percentage point tighter.
Elsewhere, bonds of Merck & Co retraced some of their losses from Thursday, when the drug maker said it was pulling its arthritis drug Vioxx off the market.
Yield spreads on Merck's 4.375 notes due 2013 tightened 0.04 percentage point to 0.33 percentage point more than Treasuries, according to MarketAxess. Spreads on that issue had widened about 0.13 percentage point on Thursday.
In other markets, benchmark 10-year Treasury notes fell 16/32, pushing yields up to 4.19 percent.