Friday March 10, 10:57 am Eastern Time

US Corp Bonds-Market settles, junk funds hemorrhage

NEW YORK, March 10 (Reuters) - After absorbing about $15.0 billion of new corporate and agency debt in just four days this week, U.S. corporate debt investors can look forward to slower issuance Friday, though they may have a few issuers to choose from.

In secondary trading, spreads, the yield difference between corporate debt and comparable maturity U.S. Treasuries, widened about one basis point, traders said.

The $3.0 billion of five-year notes that Ford Motor Credit Co., part of auto giant Ford Motor Co. (NYSE:F - news), sold Thursday also widened one basis point and were bid at 108 basis points over Treasuries, three more than where the unit sold them.

Despite persistent weakness in the finance sector, which has generated much of the week's issuance, and fallout from jumpy stock markets, total return on corporate debt is nominally positive for March and the year, at 0.068 percent and 0.505 percent respectively, a Merrill Lynch index said.

High-yield, or junk, prices were largely unchanged on Friday, with slight strength in the telecommunications sector. Another Merrill Lynch index said those prices are up 0.071 percent in March but down 0.099 percent in 2000.

And high-yield mutual fund managers just can't get a break from their investors, who yanked another $117.6 million from the funds, said sources citing data from AMG Data Services. That's the thirteenth week of net outflows in the last 14. The funds have bled about $2.8 billion over that time.

All but $700 million of this week's new debt has carried maturities of 10 years or less. Indeed, one trader said nearly all of Friday's moderate trading volume is concentrated there.

But with the Treasury Department starting to buy back longer-dated paper and total long debt issuance declining, Gary Pzegeo, who manages $2.0 billion for Evergreen Investment Management Co. in Boston, looks for value at the long end of the curve.

``We are buying 10 years and out,'' he said. "Economic fundamentals argue for flatter curves going forward, and you have Treasury buying back debt at the long end, which is creating a different structural environment.

Though the Federal Reserve's Open Market Committee meets to set interest rate policy in just 11 days, Pzegeo sees no reason to prepare unusually for it. ``The market has pretty well priced in a move from the Fed at the next meeting and the meeting after that, so I don't see any jostling or position squaring that should rattle the markets ahead of that,'' he said.

In the primary sector, Hong Kong's Kowloon-Canton Railway Corp. (KCRC), which operates commuter trains and a rail link to China, launched a $1.0 billion 10-year global note sale through HSBC Securities Inc. and Morgan Stanley, Dean Witter & Co.

The notes, rated A3 by Moody's Investors Service and single-A by Standard & Poor's, are expected to yield 167 to 169 basis points over Treasuries, 20 to 22 more than the 10-year notes KCRC sold in July. The new notes had been expected to yield 155 to 160 basis points over Treasuries.

Two companies that have suffered recent ratings cuts also plan to sell investment-grade debt shortly.

Hasbro Inc. (NYSE:HAS - news), the Pawtucket, R.I.-based maker of Furby, G.I. Joe action figures, Monopoly and Tonka Trucks, plans to sell $750 million of three- and seven-year notes through Bear Stearns & Co. and Salomon Smith Barney.

Moody's on Thursday revised Hasbro's A2 senior unsecured debt rating outlook to negative, while S&P cut its equivalent rating two notches to BBB-plus from single-A, after the company said it planned to repurchase 17.25 million shares of common stock for a total of $260 million to $300 million.

Separately, Goodyear Tire & Rubber Co. (NYSE:GT - news), the world's No. 1 tire maker, plans to sell $600 million of Baa1/BBB-plus rated notes through Chase Securities Inc. S&P cut its rating for Akron, Ohio-based Goodyear from A-minus on Tuesday, citing higher-than-expected debt usage, weaker-than-expected cash flow protection measures, and competitive industry conditions.

Smaller deals on the calendar come from Arden Realty Group Inc. (NYSE:ARI - news), $300 million, and Korea Electric Power Corp. , $500 million.

Late Thursday, sources said that in private sales, TTX Co., a Chicago-based company leasing flatcars and boxcars to railroads, sold $300 million of five-year notes yielding 145 basis points over Treasuries, while APP China Group Ltd., a holding group of paper products giant Asia Pulp & Paper Co.'s (NYSE:PAP - news) China operations, sold about $350 million of 10-year senior notes yielding 16.75 percent.

Possible junk debt sales on Friday come from SpectraSite Holdings Inc. (NasdaqNM:SITE - news), $400 million; Transportation Technologies Industries Inc. (NasdaqNM:TTII - news), $135 million, and XM Satellite Radio Holdings Inc (NasdaqNM:XMSR - news), $250 million.

And pricing information service International Insider said that SCI Systems Inc. (NYSE:SCI - news), a Huntsville, Ala.-based diversified electronics maker, sold $500 million of seven-year convertible subordinated notes late Thursday.

Excluding agencies, corporations have sold $14.5 billion of investment-grade debt and $1.14 billion of junk debt in March.

Five-, 10- and 30-year Treasuries yielded 6.574, 6.379 and 6.183 percent, respectively, on Friday, with their prices down 2/32, 7/32 and 13/32.


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