Junk bonds of Ford Motor Co and several auto suppliers fell on Friday after Ford announced more production cutbacks to speed up its restructuring, but US corporate bond spreads were mostly unchanged. The main index of investment-grade credit default swaps ended the week about two basis points tighter at 39 basis points.
Gains in the equity market, and more confidence that the Federal Reserve will not have to begin raising interest rates, again have helped the index this week, along with tightening in single names such as Jones Apparel Group, one credit strategist said.
Jones Apparel's credit default swap spreads tightened by about 60 basis points this week after the clothing and shoe maker pulled itself off the auction block, relieving worries of a leveraged buyout.
Ford's 7.45 percent bonds due in 2031 fell to 77.5 cents on the dollar, down from 79 cents on Thursday, according to MarketAxess. The automaker said on Friday it would cut fourth-quarter North American production by 168,000 units and third-quarter production by 20,000 vehicles.
Ford is accelerating its turnaround plan as high gasoline prices cut into demand for fuel-hungry trucks and sport utility vehicles. "The production cuts are certainly larger than anyone anticipated," said Brad Rubin, senior credit analyst at BNP Paribas in New York. Announcing the production cuts before coming out with more details on its accelerated turnaround plan "makes people very skittish," he said.
Fitch cut Ford's rating deeper into junk status and Standard & Poor's and Moody's Investors Service said they may follow on concerns that production cuts will hurt cash flow.
Auto suppliers' bonds were also hit after Fitch warned of higher bankruptcy risks since Ford's production cuts could cause stresses throughout the supply chain.
Dura Operating Corp's 8.625 percent notes of 2012 fell to 77.75 cents on the dollar, down from 79.75 cents on Thursday, while Lear Corp's 5.75 percent notes of 2014 fell to 81.5 cents, down from 83 cents. Dura Operating is a unit of Dura Automotive Systems.
In other markets, prices of benchmark 10-year Treasuries rose 6/32, yielding 4.84 percent, after a report showed consumer sentiment softening, bolstering expectations the Fed will not raise interest rates. The Dow Jones industrial average rose 46.5 points, or about 0.41 percent, to 11,381.5. It gained 2.65 percent for the week.