By Dena Aubin
NEW YORK, April 26 (Reuters) - U.S. corporate bond yield spreads edged tighter on Monday after hitting new multi-year lows last week as robust first-quarter earnings and a scarcity of new supply supported the market.
Of the 274 Standard & Poor's 500 Index companies that have reported, 77 percent have exceeded Wall Street's average forecasts.
Still, worries about rising interest rates are taking some of the luster off upbeat earnings news, putting a limit on potential corporate spread tightening, investors said.
Some market players may bide their time until a key employment report and results of the Federal Reserve's policy setting committee in early May give more clues to the direction of rates, said Gary Zeltzer, portfolio manager for Meadowbrook Asset Management.
"I think there are going to be a lot of people on hold until we see how the employment data is going to look," Zeltzer said.
The Labor Department reports U.S. April nonfarm payrolls data on May 7, while the Federal Open Market Committee will report its decision on interest rates on May 4.
The Fed is not expected to change rates at its next meeting but investors will be poring over the wording of its statement for clues on its intentions, said Zeltzer.
In secondary trading, spreads, the extra yields corporate bonds pay over Treasuries, tightened about 0.01 to 0.02 percentage point overall, while the more volatile auto sector saw spreads tighten about 0.02 to 0.04 percentage point, traders said.
Average corporate bond spreads dipped to 0.87 percentage point more than Treasuries on Friday, the tightest spread since August 1998, according to Merrill Lynch & Co.
Auto bonds led last week's spread rally after Ford Motor Co. and General Motors Corp. reported strong first-quarter earnings.
Auto bonds also got a boost from news that Ford and GM plan to issue less debt in the institutional market, according to Banc of America Securities. The lower issuance, along with about $25 billion in maturing debt at each company, will result in a massive reduction in auto debt in the corporate bond market, Banc of America said in a report on Friday.
U.S. Treasury 10-year notes rose 15/32, yielding 4.44 percent, as buyers stepped in after five straight weeks of losses.
To see upcoming and recent corporate bond sales, click on [nNEUBD4].