By Nancy Leinfuss
NEW YORK, Oct 23 (Reuters) - Yield margins on auto sector bonds showed signs of improvement on Thursday, after several volatile sessions in the U.S. corporate bond market, but volume was light as players paused to take inventory, traders said.
"Ford (bonds) really got whacked over the past few days and that's made people hesitant to get involved especially as we approach year-end," said one trader.
"People are still trying to figure out what to do. They are looking at their portfolios and thinking they don't want to give everything back after what's been a really good year," he said. "I think right now it's just mostly fast money pushing spreads around. Investor money is pretty much sitting still."
A downgrade by Standard & Poor's to DaimlerChrysler's credit rating coupled with a warning of a possible cut to Ford Motor ratings, sent the auto sector into a tailspin over the last two trading sessions, driving spreads substantially wider.
Despite some improvement in yield spreads of top U.S. automakers bonds on Thursday, they remain significantly wider on the week, traders said.
Yield margins on Ford Motor Credit Co.'s 7 percent paper due 2013 were recently quoted at 3.10 percentage points over Treasuries, 0.07 percentage point tighter on the day, but still 0.47 percentage point wider on the week, according to MarketAxess.
DaimlerChrysler North America Holding's 7.3 percent issue due 2012 continued to weaken on Thursday, moving out by another 0.7 percentage point to 1.78 percentage points over Treasuries. They remain 0.28 percentage points wider on the week, according to MarketAxess.
S&P cut the German-American automaker rating by one notch to "BBB," its second-lowest investment grade, from "BBB-plus."
S&P also warned it may cut Ford's "BBB" rating. A potential downgrade to Ford's ratings would leave the auto giant one notch above junk. However, the rating agency said it did not expect to cut Ford to below investment grade.
Meanwhile, General Motor , whose ratings were affirmed by S&P this week, saw its 7.125 percent paper due 2013 tighten by 0.8 percentage point to 2.32 percentage points on Thursday. Still, those bonds remain about 0.2 percentage point wider on the week, according to MarketAxess.
In the broader corporate bond secondary market, spreads remained mostly unchanged amid the light trading volume.
Turning to the primary sector, Citigroup Inc. is planning to sell $1 billion of 30-year global subordinated debt as early as Thursday. Currently, its outstanding subordinated debt is rated "Aa2" by Moody's Investors Service and "A-plus" by S&P.
So far this week, firms have sold $8 billion of investment grade supply and another $1.2 billion of junk bonds.
In other markets, U.S. Treasuries fell on Thursday, snapping a four-day rally as the latest data on the U.S. labor market sparked some profit taking. Benchmark 10-year notes were off 18/32 to yield 4.32 percent in late session trade.
To see upcoming and recent corporate bond sales, click on [nNEUBD4].