Spreads in the corporate bond market were mixed in moderate trading, with most activity occurring in high-yield names as bonds in the auto supplier sector weakened on increased speculation Delphi Corp may file for bankruptcy.
Delphi Corp set an October 17 deadline to decide whether or not it would file for bankruptcy protection as negotiation talks continue with General Motors Corp, its former parent, and the United Auto Workers union.
Analysts at HSBC Securities in New York said in a research note on Wednesday that the auto part supplier "is more likely to file, than not."
Delphi's 6.55 note due 2006 fell to 76.75 cents on the dollar on Friday, down from 78.75 cents on Thursday, according to MarketAxess.
"Delphi has the least to lose if they file for bankruptcy protection, General Motors has the most to lose, with the union somewhere in between," according to an analyst who declined to be named.
The key, he said, is the contract negotiation.
Dana Corp's bonds also fell after the company slashed its 2005 full-year earnings guidance on Thursday. Dana, along with other auto part suppliers, is pressured by lowered vehicle output at US automakers Ford Motor Co and GM.
"In general, the more exposed suppliers are to Ford and GM in North America, the more pressure they're going to be under," said Daniel DiSenso, auto sector analyst at Standard & Poor's.
About one third of Dana's total sales are to Ford and GM, he said.
Dana's 6.5 percent note due 2009 fell to 93.75 cents on the dollar, down two cents on the day, according to MarketAxess.
The annual cost to insure Dana's debt for 5 years in the credit derivatives market rose to 4.15 percent the amount insured on Friday, after closing 3.15 percent on Thursday, according to the GFI Group.
In other markets, US Treasuries fell as energy-related inflation fears overshadowed weak consumer sentiment data. The benchmark 10-year note fell 16/32 to yield 4.28 percent.