By Dena Aubin
NEW YORK, June 20 (Reuters) - U.S. corporate bond yield spreads widened on Friday after news of a planned $13 billion debt sale by General Motors Corp. and its finance unit raised worries about upcoming supply.
The sale would be the largest ever by a U.S. automaker, topping the previous record set when Ford Motor Co. sold $9.4 billion in October 2001, according to Thomson Financial.
"The overall market is a little weaker, just mostly on the autos," said Brian Cothran, a corporate bond trader for Mellon Financial Markets. "GM started weakening a little yesterday with the Fitch downgrade, but most of it was today with this massive amount of issuance coming."
Fitch Ratings on Thursday cut its ratings on GM and its finance unit to "BBB-plus" from "A-minus." Last week, Moody's Investors Service cut GM's ratings to "Baa1" from "A3."
Spreads, the extra yields corporate bonds pay over Treasuries, widened about 0.01 to 0.02 percentage point overall, while automakers' bonds widened as much as 0.30 percentage point, traders said.
News of GM's bond sale pushed spreads on some of its paper to wider levels than rival Ford Motor Co., traders said.
Ford's bonds traded at substantially wider levels than GM's earlier this year, but the two traded closer recently as worries GM's larger pension liabilities and upcoming labor negotiations pressured its paper.
General Motors Acceptance Corp.'s 6.875 percent notes due in 2012 traded at 3.35 percentage points more than Treasuries on Friday, about 0.30 percentage point wider on the day, according to MarketAxess. Ford's 7.25 percent notes due in 2011 traded at 3.14 percentage points more than Treasuries, about 0.10 percentage point wider than Thursday.
Analysts said they would not be surprised to see Ford follow GM with a debt sale. Borrowing costs are attractive, thanks to a rally in Ford's bonds and the corporate market in general this year, which has pushed yields lower, said Dominick Fumai, an analyst for BNP Paribas.
"It also alleviates some of the pressure on the ratings front," he said. Rating agencies have expressed concern about Ford's reliance on asset-backed securities for funding, so demonstrating that it has access to the unsecured market would be a plus, he said.
In other markets, Treasuries declined as hopes for an aggressive interest rate cut receded. Benchmark 10-year Treasuries fell 11/32, yielding 3.382 percent.