US corporate bond spreads widen on auto selling

US corporate bond spreads widened on Friday as the auto sector was hit with more selling following Thursday's downgrade of Ford Motor Co's ratings closer to junk territory. Bonds of automakers, which are trading mostly on dollar price quotes, fell by about 2 percentage points, a trader said. "Around 1 or 2, stocks started to slide and they've been sliding with them," said the trader. Low-rated high-yield bonds took the biggest hits, as buyers retreated in a thinly traded market ahead of the weekend, the trader said. "If you can get out on a Friday before any bad news can hit you, you try," he said. Spreads on corporate bonds overall widened by about 0.01 to 0.02 percentage point, traders said.
Corporate bonds on average yielded about 1.08 percentage points more than Treasuries as of Thursday, their widest spread since October 2003, according to Merrill Lynch.
Spreads have widened since a surprising profit warning from GM on March 16 sparked worries about the automakers' credit ratings.
Among actively traded issues, Ford Motor Co's 7.45 percent bonds due 2031 fell to 75 cents on the dollar, about 1.75 cents lower on the day, according to MarketAxess.
Ford's debt on Thursday was downgraded two notches by Moody's Investors Service to "Baa3," one notch above junk status.
Junk bonds were down 1/2 to 1 point overall, traders said, with some weaker credits down more.
Delphi Corp's 6.5 percent notes due 2009 fell to 74 cents on the dollar, down 2 cents on the day after the auto parts supplier posted a quarterly loss due mostly to production cuts at its main customer GM.
In other markets, the Dow Jones industrial average fell 49 points or 0.48 percent to 10,140 after a report showing consumer sentiment dipped in May sparked worries about the economy.
Prices of benchmark 10-year Treasuries rose 15/32, yielding 4.13 percent, as fears of troubled hedge funds sent investors into safe-haven government debt. Investor concerns center on rumours that hedge funds may have taken losses on trades in GM and Ford derivatives or bonds.