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US Corp Bonds - End flat, Ford widens on downgrade

By Dena Aubin

NEW YORK, Oct 25 (Reuters) - U.S. corporate bonds wrapped up the week mostly unchanged on Friday, but bonds of Ford Motor Co. suffered a sell-off after Standard & Poor's cut the automaker's ratings.

Ford and the other automakers make up about 7.8 percent of the corporate bond market, "and this is where we view the highest amount of market risk," Merrill Lynch analyst Mary Rooney said in a report on Friday.

Yield spreads on Ford Motor Credit's 7.25 percent notes due in 2011 widened to 5.45 percentage points more than 10-year Treasuries, up from 5.35 percentage points on Thursday, traders said.

S&P cut the "BBB-plus" long-term corporate credit ratings of Ford and its unit to "BBB," putting it two notches above junk status. Its "A2" short-term ratings were affirmed. S&P said the outlook for Ford and its unit is now negative.

Some analysts are worried that Moody's Investors Service may be next with a downgrade, especially if monthly auto sales see a significant slump in October. Automakers report their monthly sales on Nov. 1, and many analysts expect one of the worst sales months so far this year.

"Next Friday's auto sales will reveal the degree to which the incentive-driven buyer has been exhausted," Rooney said. Weak numbers could prompt a Moody's downgrade or review for downgrade, she said.

Bear Stearns analyst Dan Ilany also said in a report on Friday that he sees "significant risk" that Moody's may act. A Moody's downgrade to Ford Motor Credit's "A3" rating would put it "fully into a triple-B bucket," he said.

Bonds of Household International gained about four to five cents on the dollar after the consumer finance firm completed a share offering and a number of other transactions aimed at strengthening its capital base.

Household's 7 percent notes due 2012 were bid around 85 cents on the dollar, up around 5 cents from Thursday, traders said. The bonds had tumbled to junk-like levels over several recent sessions as investors worried about growth at the Prospect Heights, Illinois company.

In the government market, 10-year Treasuries gained 6/32, as their yields fell to 4.096 percent, after downbeat reports on capital spending and consumer sentiment sent investors into safe-haven bonds.

WYNN RESORTS

In the new issue market, Wynn Resorts Ltd. raised $343.3 million from a sale of junk-rated eight-year second mortgage notes, a major piece of financing for casino mogul Steve Wynn's newest Las Vegas mega-resort.

The 12 percent notes due in 2010 were priced to yield 13.50 percent, up from an expected range of 12.75 to 13 percent.

"In this kind of market, paying up a little was not unexpected," said John Maxwell, a fixed-income analyst at BNP Paribas.

The note offering had been repeatedly delayed while Wynn revised terms on a struggling equity portion of the deal. The notes also had to overcome a bear market in junk bonds, where a protracted run of bankruptcies and defaults had all but closed the market for new issues this fall.

To see other recent or upcoming sales, click here [nNEUBD4].