By Nancy Leinfuss
NEW YORK, June 24 (Reuters) - U.S. corporate bond yield spreads ended weaker on Tuesday as the market awaited a $13 billion bond sale from General Motors and its finance unit, and some investors took profits after a prolonged rally in the corporate debt market.
"Things are pretty quiet now. We opened up weaker but by afternoon erased about half of those losses," said one trader.
Spreads, the extra yield that corporate bonds pay over Treasuries, widened by about 0.05 percentage point overall before ending 0.02 percentage point weaker after some retail buying, traders said. Auto sector spreads, which had been driven out given the pending supply, also improved, they said.
Hoping to shore up an underfunded U.S. pension plan, GM will raise $10 billion in bonds and convertible securities. Its General Motors Acceptance Corp. finance unit will raise about $3 billion in notes to fund ongoing operations. The deal is expected to price by Thursday, traders said.
Cynthia Cole, senior portfolio manager at National City Investment Management Co. in Cleveland, Ohio, said GM is coming to market at an opportune time.
"This is the right environment for them to issue this amount of debt," Cole said. "The pricing needs to be right and I believe GM wants to make sure it's right because they want the deal to be properly placed." Cole is looking over the sale and currently holds the bonds.
Initial price talk suggests GM plans to sell a 10-year dollar bond priced to yield around 400 basis points over U.S. Treasuries, a 20-year dollar bond priced at 400 to 412.5 basis points over 30-year Treasuries, and a 30-year dollar bond at 412.5 to 425 basis points over Treasuries, investors said.
The euro portion of GM's sale will include 10-year and 30-year bonds. In addition, the auto giant may sell a sterling bond, with a maturity due in 2012 or 2015, investors said. The tranches are expected to total $6.5 billion. GM also has plans to issue $3.5 billion via a convertible sale.
In the interim, market players are awaiting the outcome of the Federal Reserve's two-day monetary policy meeting, which will wrap up on Wednesday. The Fed is widely expected to cut interest rates for a 13th time since January 2001.
In the government market, benchmark Treasury 10-year notes rose 16/32, driving their yield down to 3.251 percent.
To see upcoming or recent sales, click on [nNEUBD4].