Corporate bond yield spreads edged wider on Friday, failing to get much of a lift from upbeat economic reports amid continued investor worries that the market is overvalued after last year's rally.
Spreads, or the yield gap between corporate bonds and Treasuries, widened by about 0.01 percentage point overall, while the more volatile auto sector widened by about 0.04 percentage point, traders said.
Spreads have drifted wider since late January, weighed down by investors' anxiety over valuations and distaste with yields that are mired near record lows.
"People are taking down risk positions a little, but frankly, I would view it more as the pause that refreshes rather than the end of what I would consider a good period of time to invest in corporate bonds," said Kenneth Taubes, director of fixed-income for Pioneer Investment Management USA.
Corporate bonds are unlikely to repeat last year's strong performance.
But robust corporate earnings, a healthy economy and a pickup in business spending should help spreads tighten modestly this year, he said.
Much of February's spread widening has been in sectors that rallied the most last year, especially autos, said Simon Ballard, global credit strategist at Bear Stearns.
"The widening hasn't been across board. It's been in the higher-beta, lower-rated credits," he said, referring to bonds most sensitive to market moves.
"We should resume a gradual grind tighter over the remainder of the first half of year," he added.
Junk bonds were unchanged to 1/4 point higher, traders said, as the market stabilised after a rocky week.
In the new issue market, No 1 North American tiremaker Goodyear Tire & Rubber Co privately sold $650 million of senior notes to help pay down outstanding debt.
Goodyear, which is facing a formal Securities and Exchange Commission investigation of its accounting, paid a yield of 11.125 percent on seven-year fixed-rate notes and 8 percentage points more than the six-month London interbank offered rate on seven-year floating rate notes.
Prices on US Treasuries rose after low readings on core inflation reassured investors that interest rates will remain low for a time.
Benchmark Treasury 10-year notes rose 15/32, yielding 3.981 percent.
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