US corporate bonds unchanged

US corporate bonds were unchanged on Friday in light activity as investors awaited a pickup in new issuance next week to gauge the market's health after a bout of spread widening. Average corporate bond spreads had gapped out by six basis points in June to about 100 basis points over Treasuries.
But have held largely steady this week on low volumes as the Independence Day holiday left desks lightly staffed. As activity resumes next week, investors will be keeping an eye on the high-yield market, where about $300 billion in loans and bonds for leveraged buyouts are awaiting financing, strategists said.
"People are going to be watching that very closely to see how the market absorbs it," said Scott MacDonald, director of research at Ala Capital in Stamford, Connecticut.
Though ample liquidity has helped corporate bond spreads recover from spread widening in the past, the more time goes by, the greater risk that liquidity will temporarily come to an end, he said. The high-yield market was quiet this week after the only scheduled sale, a $1.15 billion issue from ServiceMaster Co, was pulled because of soft market conditions. ServiceMaster was the latest of numerous new issues to struggle after troubles at two Bear Stearns hedge funds curbed appetite for risky assets.
In another bearish sign, US junk bond mutual funds reported a $222.8 million net outflow in the week ended Tuesday, the fourth straight week of large outflows from the funds, according to AMG Data Services.
Lyondell Chemical Co's bonds rose on the possibility that it might be taken over by Dutch chemicals maker Basell, according to KDP Investment Advisors. Basell had bid for Huntsman Corp but was trumped by Apollo Management and may switch targets rather than get into a bidding war, KDP market analyst Justin Monteith said in a research note. Lyondell's 8.25 percent notes due in 2016 rose to 105.75 cents on the dollar, about one-quarter cent higher on the day, according to MarketAxess.
Credit default swaps held at wider levels on Quest Diagnostics amid speculation about a leveraged buyout of the biggest US medical testing company. A Quest spokesman said it is company policy not to comment on rumours or speculation.
Five-year protection costs on Quest were quoted at 84 basis points, or $84,000 for every $10 million protected, according to GFI Group. On Thursday, Quest Diagnostic's CDS spreads had widened by 35 basis points to 84 basis points, according to Market.