By Dena Aubin
NEW YORK, Oct 22 (Reuters) - Automakers' bonds took a hit for a second day on Wednesday as a ratings warning on Ford Motor Co. spurred selling in the sector and pushed yield spreads wider on lower-quality corporate debt.
"Higher quality stuff is hanging in, maybe a basis point wider," said one corporate bond trader. "It seems like an up-in-quality trade in here. No one is selling the higher quality stuff." A basis point is 0.01 percentage point.
Bonds of lower-rated companies were pummeled after Standard & Poor's on Tuesday warned that it might cut its ratings on Ford to one notch above junk. S&P also downgraded its ratings on DaimlerChrysler by one notch and affirmed General Motors Corp.'s ratings with a negative outlook.
"Ford (bonds) had done very well over the last several weeks and they have basically given a lot of that performance back with the S&P action," said Steve Nelson, portfolio manager for AXA Investment Managers.
Ford's bonds widened by about 0.35 percentage point on Wednesday, traders said, bringing their two-day widening to about 0.65 percentage point.
Although automakers' bonds make up only about 6 percent of the corporate bond market, based on their market value, they have a disproportionate impact because their yields spreads are the widest of any major sector, said Jeffrey Rosenberg, head of credit strategy research at Banc of America Securities.
"There's a tremendous concentration of risk and hence yield in the auto sector, and that's why it has such an important influence on the market," he said.
The auto sector turmoil may have raised borrowing costs for Telecom Italia Capital , which boosted yields on its $4 billion bond sale on Wednesday. Investors said yields were raised to compensate for widening yield spreads on lower-rated bonds.
Telecom Italia Capital, a unit of Italy's dominant phone group, sold five-year notes yielding 0.83 percentage point more than Treasuries, 10-year notes yielding 1.03 percentage points more than Treasuries, and 30-year bonds yielding 1.28 percentage points more than Treasuries, all about 0.03 percentage point wider than earlier guidance.
In other markets, benchmark 10-year U.S. Treasury notes rose 22/32, yielding 4.258 percent, as skidding stock prices raised the appeal of safe-haven debt.
To see upcoming and recent corporate bond sales, click on [nNEUBD4].