US corporate bond spreads were mixed on Friday as a rally in credit spreads faded amid concerns about the soundness of financial firms. Overall investment-grade corporate bonds were little changed on Friday, traders said. The main index of high-grade credit default swaps narrowed about 8 basis points to 207 basis points heading into the close, according to Markit Intraday.
For the week, spreads traded little changed in a range of between 554 to 557 basis points. "We're seeing more movement sidesways for the most part," said credit analyst John Tierney, of Deutsche Bank in New York. "The housing and jobs data this week were bad. It's becoming more and more apparent that the next couple of quarters is going to be bad."
In two separate reports on Thursday, investors got more negative news about the state of the US jobs market and housing industry picture. The number of US workers filing new claims for jobless benefits rose by a more-than-expected 62,000 last week, government data on Thursday showed.
New US housing starts and permits also tumbled to a record low in December. Among new sales, Citigroup on Friday launched $12 billion in FDIC-backed notes, the largest planned sale to date, with pricing expected later on Friday. The sale includes $2.25 billion in 1.5-year floating-rate notes expected to yield 10 basis points over the three-month London Interbank Offered Rate, or Libor.
The US government program to help banks sell new bonds may be extended for another six months to help the US compete with Britain, Barclays Capital said in a report. US financial firms have sold $140 billion in debt under a new Federal Deposit Insurance Corp plan initiated late last year, according to Thomson Reuters data through Thursday.
The FDIC's program, approved in November, follows a similar British plan put in place in October to help fill a financing gap for banks shut out of the corporate bond market due to tight credit conditions.
"Notably, the UK extended the issuance window for its guarantee program through year-end, which brings it in line with most of continental Europe," Barclays said in report late Thursday. "We expect the FDIC to do the same soon, in order to keep the US program competitive.