US corporate bond spreads tightened for a third straight day on Friday, helped by a relief rally in the auto sector after Ford Motor Co on Thursday managed to cling to investment-grade ratings. Ford's bonds rose about 1/2 point overall on Friday, traders said, extending gains from Thursday when Fitch downgraded the automaker's debt but stopped short of cutting it to junk. Fitch said Ford is unlikely to be cut to junk this year, but the automaker still faces challenges, analysts said. A restructuring agreement with Visteon, reported on Friday, for example, could be a drain on Ford's resources, said Sean Egan, managing director at Egan-Jones ratings Co in Haverford, Pennsylvania.
Under a tentative restructuring deal, auto supplier Visteon will shed 13 to 15 of its US plants, spinning most of them off to a holding company controlled by Ford, the Detroit News reported.
"There's another big issue overhanging Ford, and that is whether a number of employees who work for Visteon, who are Ford employees, are going to be heading back Ford," Egan said.
Ford, which is struggling with high labour costs, has about 17,700 unionised workers assigned to Visteon, which would like to return the workers to Ford to lower its labour costs.
Still, relief over Ford's ratings helped corporate spreads tighten by about 0.01 percentage point, traders said.
Junk bonds rose about 1/4 point, their third day of gains after weeks of selling.
"It may be a little short-covering, and people are reassessing where we go from here," said Jacques Cornet, head of leveraged finance research at CIBC World Markets. "I don't think there's anything fundamentally new."
Maytag Corp's bonds fell a day after the appliance maker agreed to be acquired for $1.125 billion by a private equity firm, a deal expected to increase Maytag's borrowings.
Maytag's notes with a 5 percent coupon due 2015 fell to 78.5 cents on the dollar, down about 3/4 cent on the day, according to MarketAxess.
In other markets, benchmark 10-year Treasury notes declined 2/32, yielding 4.13 percent, as a recent bout of safe-haven buying subsided.
Comments
Comments are closed.