US corporate bond spreads edged tighter on Friday, while the price of General Motors Acceptance Corp (GMAC) bonds rose amid hopes that a partial sale of the GM finance unit would soon be announced.
The Wall Street Journal reported on Thursday that GM has settled on the broad structure of a partial sale of GMAC to private equity firm Cerberus Capital Management. Cerberus is expected to offer $11 billion or more for a 51 percent GMAC stake, the Journal reported.
"If they do manage to get a sale off, this puts things in right direction, although I think that saga has got a way to go," said Scott MacDonald, director of research at Aladdin Capital.
A sale is critical for GM, which needs cash to restructure its money-losing North American operations and help resolve labour issues at its bankrupt key supplier Delphi Corp.
Delphi, which has been trying to slash costs so that it can exit bankruptcy, on Friday moved to void its US labor contracts, prompting threats of a strike by the United Auto Workers union. Though a Delphi strike would shut down GM, the automaker will likely use funds from a GMAC sale to provide more help to Delphi, Egan-Jones Ratings Co said in a research note on Friday.
GMAC's 8 percent bonds due in 2031 rose to nearly 95 cents on the dollar, up about two cents on the day, according to MarketAxess.
Across the broad high-grade corporate bond market, spreads were about 0.01 percentage point tighter overall, helped by month-end buying as investors rebalanced portfolios, a trader said.
Spreads have tightened by about 0.04 percentage point this quarter even as the market absorbed $235 billion in new supply, a 36 percent increase over the same period in 2005.
Issuance will likely remain strong as companies refinance maturing debt and borrow to fund acquisitions, strategists said.
"We're not going to see a record week or record month coming up, but it should be pretty substantial," said Vincent Murray, head of investment-grade syndicate at LaSalle Capital Markets. "Spreads are still tight, so even though we're seeing a backup in Treasury yields, the issuers are still getting relatively attractive pricing."
Yields on benchmark 10-year Treasuries rose by nearly 0.20 percentage point this week to 4.86 percent amid concerns that the Federal Reserve would continue raising interest rates.