US corporate bond spreads widened on Friday as record high oil prices raised questions about future corporate profits and pulled equities to their lowest levels in six weeks. Crude oil futures closed at the highest level ever on the New York Mercantile Exchange after hovering around $60 a barrel since Thursday.
"Investors see six-zero and start to get nervous, bringing focus to the price of oil and the possible effect on the credit markets," said Mike Mutti, high grade strategist at Bear, Stearns, & Co.
High oil prices hit the Dow Jones industrial average. The Dow, Standard & Poor's 500 index and the Nasdaq Composite posted their worst weekly percentage declines in more than two months.
Autos were the hardest hit on Friday. High oil prices are making consumers less-inclined to buy sport utility vehicles, the most profitable cars for Ford Motor Co and General Motors Corp GM's 8.375 percent bonds due 2033 fell more than 1 cent to about 80 cents on the dollar.
Higher oil prices are a boon for some credits. Spreads on Occidental Petroleum Corp's 8.45 percent bonds due 2029 have narrowed 0.07 percentage point this week, helped by upgrades from Moody's Investors Service and Standard & Poor's. The oil and gas producer's profits have surged as oil prices have risen.
But higher energy prices have been weighing on most credits, and new issuance is not helping. In the beginning of the week, companies sold about $18 billion of investment-grade bonds.
Last year that issuance would have had little impact on spreads, as investor demand was seemingly insatiable. But investors are more cautious now.
"In this market environment, new supply, especially in the 30-year area, has a tendency to push spreads wider and they stay wider," said Scott MacDonald, director of research at Aladdin Capital in Stamford, Connecticut.
In the US Treasury market, debt prices rose as higher oil prices and falling equities pushed investors into safer instruments. The 10-year Treasury note rose 9/32 to 101-2/32, to yield 3.92 percent.
The Dow Jones industrial index ended down 123.60 points, or 1.19 percent, at 10,297.84.