US corporate bond spreads held steady on Friday after Citigroup Inc unveiled a plan to rescue $49 billion of off-balance sheet investments. Goldman, the Wall Street bank that profited most from its contrarian bets on credit, advised clients that Citi's bonds had become cheap after Moody's Investors Service cut Citigroup's credit rating for the second time in as many months.
Corporate bond spreads were little changed to slightly wider in light year-end trading, traders said. Citigroup's 6.125 percent notes due in 2017 gained on Friday. The spread, or yield premium investors demand to hold its bond over Treasuries, narrowed by 4 basis points to 167 basis points, according to MarketAxess data. "It's right to do and the right thing for the market," said Carl Kaufman, portfolio manager at Osterweis Capital Management in San Francisco.
Citigroup plans to place the SIV assets on its balance sheet, which will further strain the firm's capital levels and may mean a US government-endorsed "Super-SIV" bailout plan is no longer needed. In other rating news, Standard & Poor's on Friday raised its rating on Dow Jones & Co's senior unsecured debt by one notch, citing the close of its buyout by News Corp.
S&P raised its rating on Dow Jones' $225 million 3.875 percent senior notes to "BBB-plus," the third-lowest investment-grade rating, from "BBB." The notes are expected to be assumed by News Corp, the rating agency said in a statement. Dow Jones "BBB" long-term corporate credit rating was withdrawn.
Earlier on Friday, Moody's Investors Service downgraded its ratings on those Dow Jones notes by one notch to "Baa2," its second-lowest investment grade rating, saying their credit risk will now be on par with that of News Corp.