By Dena Aubin
NEW YORK, Oct 22 (Reuters) - Automakers' bonds were hit with selling for a second day on Wednesday after Standard & Poor's rocked the corporate bond market on Tuesday by downgrading DaimlerChrysler and warning that it may cut ratings on Ford Motor Co.
U.S. corporate bond yield spreads over Treasuries widened by about 0.02 to 0.03 percentage point overall in early trading, with automakers' bonds widening by about 0.15 to 0.20 percentage point, traders said.
As selling pressure hit lower-rated corporate bonds, yields climbed on a hugely popular debt sale by Telecom Italia Capital, likely to compensate investors for weaker market conditions, investors said.
"Spreads are definitely a lot wider than when they started talking the deal," said Joe Jackson, portfolio manager for BB&T Asset Management. "There still seems to be a ton of interest, so I think they're just trying to be fair to their investors."
Telecom Italia Capital said it plans to sell $1 billion of five-year notes yielding 0.83 percentage point more than Treasuries, $2 billion of 10-year notes yielding 1.03 percentage points more than Treasuries, and $1 billion of 30-year bonds yielding about 1.28 percentage points more than Treasuries. Those spreads are about 0.03 percentage point wider than informal guidance in the market on Tuesday.
Corporate bond spreads widened on Tuesday for the first time in 11 sessions after S&P surprised the market with its rating actions on Ford and DaimlerChrysler .
"You're seeing the whole corporate (market) go wider and you're seeing a lot of fast money probably selling telcos, autos and media," said Jackson.
Bonds of telecommunications, media and auto companies had been strong performers this year as yield-hungry investors moved to lower-rated sectors in search of higher returns.
Spreads on many of those bonds widened sharply on Wednesday, however. Time Warner's 6.875 percent notes due in 2012 traded at 1.08 percentage points more than Treasuries, about 0.13 percentage point wider than on Tuesday, according to MarketAxess. The bonds widened despite strong third-quarter results from the company on Wednesday.
Sprint Capital Corp.'s 8.75 percent bonds due in 2032 traded at 2.31 percentage points more than Treasuries, about 0.10 percentage point wider on the day, MarketAxess reported.
In other markets, U.S. Treasury prices rose as a downturn in stocks sent investors back to safe-haven government debt. Treasury 10-year notes rose 13/32, yielding 4.296 percent.
To see upcoming and recent corporate bond sales, click on [nNEUBD4].