By Dane Hamilton
NEW YORK, March 25 (Reuters) - U.S. corporate bonds strengthened on Tuesday, helped by rising equities markets, as light volumes were offset by strong interest in new issues like Raytheon Co. , traders said.
Spreads, or the yield difference between corporate bonds and U.S. Treasuries, were quoted 0.02 to 0.05 percentage points tighter in afternoon trading overall, traders said.
"We've firmed up across the board," said one trader. "The stock market is driving it, although there's less volatility in corporate spreads than there is in stocks."
Corporate bond market activity was dampened by an intense interest in the unfolding events in Iraq, traders said. Stock prices surged after reports of a rebellion against Iraq's government by citizens in Basra, the second largest city.
The Dow Jones industrial average closed up 68 points, or 0.8 percent, at 8,283, while the Nasdaq Composite index gained 21 points, or 1.6 percent, at 1,391.
The bond market also got a filip from defense contractor Raytheon's sale of $425 million in 10-year notes, which was said to be oversubscribed. And Ford Motor Co. , whose bonds have been weighed down by credit worries in recent months, seemed to stabilize somewhat as a vision of post-war economic gains through cheaper oil seemed plausible, traders said.
For instance, Ford's 7.5 percent notes due 2015 rose to 102.4 cents on the dollar from yesterday's close at 99.8, with its yield dropping to 6.1 percent from 7.6 percent.
In the government market, prices of 10-year U.S. Treasuries rose 3/32, yielding 3.957 percent on news that the U.S. Senate unexpectedly reversed course and voted to slash the Bush Administration's tax cut plans. Such a move likely means the government won't have to issue as much debt to feed a widening maw of government deficits as under Bush's original plan, analysts said.
The high-yield market gained 1/4 point overall, said traders, punctuated by a downdraft in Levi Strauss bonds after the sportswear manufacturer posted a quarterly loss and issued a gloomy full-year outlook. The company's bonds faded to 94 cents on the dollar from 103.5, with yields widening to 13.3 percent from 10.6 percent, according to TRACE, the National Association of Securities Dealers' bond pricing service.