US corporate bond spreads narrowed on Friday after a weaker-than-expected employment report suggested that the Federal Reserve was likely to leave interest rates unchanged for now.
The Federal Reserve last week changed the language of the statement that accompanied its rate policy decision, hinting that it might raise rates sooner than the market had reckoned.
That pushed corporate bond spreads wider last week and for most of this week.
But after US payrolls rose by a lower-than-expected 112,000 jobs in January, investors moved back their expectations for rate hikes, and the general credit tightening that tends to push corporate bond spreads wider.
"Whatever you thought the timetable for a hike was last week, you have to delay it now," said Jack Beyda, a portfolio manager at Brown Bothers Harriman in New York. Spreads on Ford Motor Credit Co notes with 7 percent coupons maturing in 2013 narrowed 6 basis points to 215 basis points.
Spreads on Electronic Data Systems notes with 6 percent coupons maturing in 2013 blew out 23 basis points to 223 basis points after the Plano, Texas-based company posted a big $354 million quarterly loss and wrote down $559 million in deferred costs associated with a Navy contract.
"They were disappointing results," said Clare Jansson, a bond analyst at Banc of America Securities in Charlotte, North Carolina. The EDS notes of 2013 contain a provision where the coupon increases by 50 basis points, or 0.5 percentage point, if the company is downgraded to junk by either Moody's Investors Service or Standard & Poor's.
Moody's Investors Service said on Friday it might cut the company's Baa3 senior unsecured debt rating to junk.
Standard & Poor's said on Thursday it might cut EDS, but it rates the company's senior unsecured debt "BBB," two steps above junk. In the high-yield world, bonds of satellite broadcaster Pegasus Communications Corp fell, and the company may cancel a bond sale, a day after TV provider DirecTV ended talks over a contract to resell DirecTV service in rural areas.
The dispute could prompt Pegasus to cancel a $100 million bond sale it announced this week, said Aryeh Bourkoff, a UBS analyst who does not own Pegasus securities.
As Pegasus bond prices plunged on Friday, yields rose more than 4 percentage points, making a bond sale much less economical, Bourkoff said.
Pegasus bonds, which traded between 98 and 102 cents on the dollar on Wednesday, plunged to 80 to 85 cents on the dollar on Friday, traders said.