US corporate bond spreads ended mostly unchanged on Friday after two days of widening on fears General Motors Corp debt would be cut to junk. GM bonds ended widely mixed on Friday as bottom-feeding boosted some maturities while selling pressure remained the dominant force on other issues. Spreads in the broader market are likely to stabilise in the near term but the GM saga is likely to bring more volatility to the market, market participants predicted.
"There will be additional bouts of volatility surrounding the GM name, both positive and negative," said John Kollar, fixed-income analyst at HSBC Securities in New York City. On Wednesday, General Motors was hit by a triple punch from the ratings agencies after it slashed 2005 earnings guidance.
Standard & Poor's revised its GM rating, already just one step above junk, to negative from stable, Fitch cut its rating to one notch above junk, keeping a negative outlook, and Moody's Investors Service warned it may cut its rating on GM, which is two steps above junk. GM bonds were beaten up on Wednesday and Thursday.
Theron Holladay, chief investment officer at Parkway Advisors in Abilene, Texas, said he is not buying GM bonds nor is he selling what he already holds.
In the broader market, spreads may have seen their tightest levels already for the year but they may stay about where they are for a while, Holladay said.
Spreads on GM bonds narrowed some in early trading on bargain hunting, but selling pressure caused some maturities to lose more ground, traders said.
Spreads on GM bonds due 2021 with an 8.8 percent coupon traded 0.19 percentage point tighter to yield 4.86 percentage points more than comparable Treasuries late on Friday, according to MarketAxess.
Meanwhile, spreads on GM bonds due 2013 with a 7.125 percent coupon traded 0.17 percentage point wider to yield 4.49 percentage points more than comparable Treasuries late on Friday, according to MarketAxess.
In the broader market, spreads are about 5 basis points higher than their lows of the year, last seen on Monday and the prior week, but they remain historically tight due to strong corporate credit quality in general, analysts said.
In other markets, Treasuries turned lower on Friday as an easing of credit quality concerns cut short the week's rally and allowed inflation fears to creep up again.
With the next Federal Reserve meeting only two trading days away, investors went back to worrying about just what sort of signal policy-makers might send regarding the pace of future interest rate increases. Ten-year Treasury notes ended down 11/32, pushing the yield back up to 4.5 percent.