By Dena Aubin
NEW YORK, Oct 28 (Reuters) - U.S. corporate bond yield spreads tightened Tuesday as sentiment about automakers turned more positive ahead of a conference call by Standard & Poor's.
"The conference call today is really going to set the tone for the market," said one corporate bond strategist. "From the press release Standard & Poor's issued (on Monday), it sounds like they're less negative than most people otherwise anticipated."
S&P said on Monday that it would hold a conference call on Tuesday, Oct. 28 at 10:30 a.m. (1530 GMT) to clarify its recent decision to put Ford's rating on review for a downgrade. Yield spreads on some automakers' bonds had widened almost a full percentage point last week after S&P's downgrade warning.
Spreads on Ford's 7 percent notes due in 2013 tightened by about 0.08 percentage point early on Tuesday, to trade at 3.05 percentage points more than Treasuries, according to MarketAxess.
In the broader corporate bond market, yield spreads over Treasuries tightened by about 0.01 percentage point, traders said.
In the high-yield market, bonds of R.J. Reynolds Tobacco Holdings rose about 3 points to 5 points following news that it was buying the tobacco business of British American Tobacco Plc .
Shares of R.J. Reynolds also surged despite a hefty quarterly loss posted early on Tuesday as the maker of Camel and other cigarettes took charges and cut jobs in a bid to trim costs. The company's shares rose $4.85 or 11.2 percent to $48.10 on the New York Stock Exchange.
Still, bond investors may want to take the opportunity to exit the RJR name, an analyst at research service Gimme Credit said in a report, citing concerns that the acquisition would increase R.J. Reynolds' credit risks.
"Combining these two languishing businesses seems a desperate move to try to turn things around by getting bigger and cutting costs," Gimme Credit analyst Carol Levenson said.
In other markets, U.S. Treasuries slipped amid worries that the Federal Reserve will turn more optimistic on the economy at its policy meeting on Tuesday. Benchmark 10-year notes fell 8/32, yielding 4.31 percent.
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