By Nancy Leinfuss
NEW YORK, Jan 29 (Reuters) - U.S. corporate bonds opened unchanged in quiet trade as investors paused to ponder the looming specter of war with Iraq, and awaited the latest decision on interest rates from the Federal Reserve, traders said.
Spreads -- the yield gap between corporate bonds and U.S. Treasuries -- were quoted unchanged across the broader market while auto bonds were seen a tad weaker, traders said.
"The FOMC is not expected to be anything but the Iraq war situation is continuing to present the market with hurdles to overcome," said Brian Cothran, fixed-income trader at Mellon Financial Markets.
"First we had the U.N. inspector's report delivered by Blix and now we have to wait on Powell's meeting with the Security Council. That's keeping the market underpinned and investors at bay here," said Cothran.
President George W. Bush during his State of the Union speech Tuesday night fed fears the United States is edging closer to a war against Iraq. He said Secretary of State Colin Powell would present evidence of Iraq's weapons program to the United Nations next week.
Meanwhile, Fed policy-makers are due to wrap up a scheduled two-day meeting on Wednesday.
The Fed is widely expected to leave short-term interest rates unchanged at 1.25 percent, their lowest level since July 1961, although a few economists think the Fed may say risks of slower growth now outweigh those of inflation. The Fed had earlier said those risks were balanced.
Ten-year Treasuries were off 2/32, yielding 3.981 percent, and the Dow Jones industrial average traded down 86 points to 8,001.
DEBT SALES
Only one investment grade sale is pending on the corporate bond calendar. Avnet Inc. , a global distributor of electronic components and computer products, is expected to bring a $250 million offering of five-year notes, rated Baa3/BBB-minus. Banc of America Securities and Credit Suisse First Boston will underwrite the offering.
While the pace of corporate bond issuance has slowed over recent days, dealers said the threat of a war with Iraq might prompt companies to get deals completed sooner rather than later.
So far this week, investment grade issuers have sold $1.8 billion.
In Tuesday's largest sale, Sempra Energy , parent of San Diego Gas & Electric and Southern California Gas, sold $400 million of 10-year notes, $100 million more than originally planned. Sempra's notes yielded 6.046 percent, or 2.05 percentage points more than Treasuries, and drew some $1.2 billion in orders.
Charlie McMonagle, Sempra Energy's treasurer, said low borrowing rates and healthy investor demand made it an attractive time to come to market.
"Interest rates are attractive, and to lock in a 6 percent rate was appealing for us," said McMonagle. "The markets were attractive, and the possibility of a war could add volatility, which made it appropriate to sell now," he said.
To see upcoming or recent corporate debt sales, please click on [nNEUBD4].