By Dane Hamilton
NEW YORK, March 21 (Reuters) - U.S. corporate bonds strengthened on Friday, in tandem with the stock markets, fueled by optimism that a quick end to the U.S.-led war with Iraq would lead to economic improvement.
"It's a better story across the board," said one corporate bond trader. "There's a ton of money that's floating around and no other options."
Spreads, the yield difference between corporate bonds and U.S. Treasuries, were quoted 0.02 to 0.05 percentage points tighter overall, following similar gains yesterday, traders said. Media and telecom spreads were about 0.10 percentage point tighter after news of a planned cash infusion at cable provider Liberty Media .
Intense interest was focused on television screens showing heavy aerial bombardment of Baghdad amid varying unconfirmed reports that Iraqi leader Saddam Hussein was killed or wounded. Those reports and news the U.S.-led invasion into southern Iraq was progressing apace, as well as the capture of certain oil fields seemed to cheer both the equity and corporate bond markets. Blue chip stocks closed up 235.02, or 2.84 percent, at 8521.62 on the New York Stock Exchange.
In the government debt market, Treasuries plunged as investor optimism about the outcome in Iraq took the allure off safe-haven debt. Ten-year Treasuries fell 1-8/32, pushing yields up to 4.11 percent.
"We're all watching the news over here," said a corporate bond trader at a major New York brokerage. "Spreads are tighter in line with the stock markets."
Among the more actively traded issuers was Ford Motor Co. , which like other major car makers would benefit from a quick end to hostilities, providing oil prices stabilize in the near term.
In a recent trade, Ford's 6.625 percent notes due in 2028 traded at 70.8 cents on the dollar, up from a Thursday close at 69.3, with its yield falling to 9.74 percent from 9.96 percent, according to TRACE, the National Association of Securities Dealers' bond pricing service.
And bonds in the cable sector got a lift after Liberty Media raised cash with a sale of $1.5 billion of 20-year bonds convertible into shares of AOL Time Warner .
"Spreads in general have followed, if weakly, the constructive tone of the equity market," Vincent Boberski, corporate bond strategist at RBC Dain Rauscher said in a report. There has been "absolutely no evidence of the kind of war-induced jitters that we had been expecting to see at this point," he said.
Despite the war distraction, investors soaked up several new issues, including $500 million of three-year notes from U.S. Bancorp and $150 million of seven-year notes from meat processor Swift & Co.
To see recent or upcoming corporate bond sales, click on [nNEUBD4].