Currencies

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US Corp Bonds-Spreads narrow after jobs report
Friday April 2, 6:12 pm ET
By Dan Wilchins


NEW YORK, April 2 (Reuters) - U.S. corporate bond spreads tightened on Friday, after a blowout jobs report gave investors hope that the economy was in full recovery mode, and that corporate profits should continue to grow at a strong pace.


The Labor Department said on Friday that payrolls outside of the agricultural sector surged by 308,000 jobs in March, the biggest increase in nearly four years and well above the 103,000 expected on Wall Street.

The report slammed bond prices in general, leading the 10-year Treasury yield (US10YT=RR) to stage its biggest one-day rise since the Long-Term Capital Management crisis in 1998.

But corporate bonds spreads tightened, and stocks rose, as investors focused on the extent to which rising employment should help spur spending and boost profits.

Spreads opened dramatically tighter, but gave back a good part of their initial gains during the session as investors fretted more about how soon the Federal Reserve would hike rates.

"This report is still good news for corporates," said Edward Marrinan, a high-grade corporate bond strategist at J.P. Morgan in New York.

If the Fed raises rates in November, as J.P. Morgan economists are forecasting, corporate spreads could still have a few quarters of solid performance, as investors focus on the likelihood of improving profits, Marrinan said.

In the new issue market on Friday, NTL (NasdaqNM:NTLI - News), Britain's largest cable operator, sold an 800 million sterling equivalent deal with dollar, euro, and sterling tranches.

The $425 million 10-year note, which cannot be bought back for five years, was priced at par to yield 8.75 percent. The notes are being issued through a subsidiary, ntl Cable Plc.

In the secondary market, spreads on Sun Microsystems Inc.'s (NasdaqNM:SUNW - News) notes maturing in 2009 with a 7.65 percent coupon jumped as high as 2.2 percentage points, before coming back in to 2 percent, about unchanged on the day.

The company announced on Friday that its quarterly loss would be wider than current Wall Street estimates, but also announced that it had resolved its bitter anti-trust battles with Microsoft Corp. (NasdaqNM:MSFT - News), and planned to cooperate more closely with the Redmond, Washington-based behemoth.

The Microsoft settlement will result in payments of $2 billion to Sun Micro, which exceeds the size of Sun's outstanding debt.

Tyco International Ltd. (NYSE:TYC - News) debt, meanwhile, was little moved by news that the corruption trial of two former executives ended in a mistrial.

Spreads on most of the company's bonds narrowed about 0.05 percentage points, in line with the market, traders said.

"People care about the company, not the trial," a trader said.