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US Corp Bonds - Corps, junk weak despite stock turnaround

By Nichola Groom

NEW YORK, June 24 (Reuters) - U.S. corporate bonds weakened considerably on Monday, shrugging off a rebound in equity markets, as concerns about the outlook for corporate profits and the broader economy continue to fester.

"We are under extreme selling pressure today," said one high-grade trader. "There is no buying, just selling."

Spreads, the yield difference between corporate bonds and comparable maturity U.S. Treasuries, widened between 0.10 and 0.20 percentage point, traders said.

Bonds issued by automakers suffered the most as their yields were pushed out between 0.10 and 0.20 percentage point. Auto bonds have weakened steadily in recent weeks on concerns the Big Three automakers will be unable to meet their production and profit targets due to waning consumer confidence.

Yields on bonds of Citigroup , FleetBoston Financial Corp. , and other banks with exposure to Brazil, Latin America's largest economy, were pushed out between 0.05 and 0.10 percentage point.

Citigroup and Fleet together have about $24 billion at stake in Brazil, whose currency is at an all-time low as worries persist about its debt and upcoming elections. On Friday, Moody's Investors Service revised the country's debt ratings outlook to "negative" from "stable."

In the government market, 10-year Treasury notes fell 7/32, and their yields rose to 4.836 percent.

WIRELESS DRAGS ON JUNK

In the junk bond sector, prices fell between 2 and 3 points in early trade, then recovered about a point off their lows as the stock market rose, traders said.

Prices on bonds of wireless companies were off about 3 to 5 points overall after Moody's Investors Service on Friday revised its outlook for the U.S. wireless industry to negative, citing a rapid deceleration in demand.

Also on Friday, Standard & Poor's placed Leap Wireless Inc. on credit watch amid concerns about how the company's ongoing operating losses will impact liquidity.

Friday's actions were the latest blow to the wireless industry, which has been plagued by heightened industry competition and sluggish growth.

"A frenzy of seemingly unmotivated rating agency actions and pronouncements last week, as well as a fairly steady ratcheting down of stock prices, make the wireless sector look like the new energy sector," Carol Levenson, director of research at Gimme Credit, a fixed-income research service, said in a report. "Just when you think all the bad news is out, there's more on the way."

BONDS LIKELY TO LAG STOCKS

Stocks rallied in late afternoon trade on Monday after weeks of selling had driven them down to fresh lows for the year. The Dow Jones Industrial Average closed up 28 points at 9281.82.

Bond traders said a turnaround in the bond market would likely lag that of the equity markets.

Analysts, also, voiced concern about the short-term outlook for corporate bonds.

"With liquidity declining as summer begins... credit spreads could show greater propensity to weaken than tighten over the coming weeks," Bear Stearns said in a research report on Friday.

BOND DATA

For the year to date, junk bonds have gained just 0.073 percent, compared with 3.925 percent for Treasuries and 3.149 percent for investment-grade corporate bonds, according to Merrill Lynch.

About $9 billion in straight investment-grade corporate debt was priced in the market last week. Junk bond sales totaled about $1.3 billion for the latest week, dealers said.

For more upcoming and recent debt sales, please click here [nNEUBD4].