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Corporate bonds hit

new session

lows by close

NEW YORK: US high-grade corporate bonds were beaten to session lows by the close as a spike in commodity prices stoked inflation jitters ahead of producer price report, dealers said on Wednesday.

On the long-end, corporates mirrored the bellweather 30-year long bond which lost over a point in late trade after the Knight Ridder Commodity Research Bureau Index jumped to 259.10, an almost eight year high.

Yield spreads across most maturities held firm, but continue to be under pressure as a falling government market increases hedging cost for corporate bond holders.

Intermediate paper yield spreads held firm to slightly wider Wednesday following almost two weeks of subtle widening, dealers said.

"It's a phenomena we've been experiencing over the past ten days. With the onerous financing environment for the 10-year note, hedging your interest rate risk is expensive which makes dealers less willing to hold the paper," one dealer said.

Analysts said a rise in producer prices above the 0.4 percent increase expected in March would trigger a sell-off in governments which would bleed into the corporate market.

But a lesser increase would have limited upside as market makers wait for confirmation of the good news in Friday's numbers before bidding up prices.

Junk bond prices closed unchanged to off a quarter in light trade, high-yield traders said.

A strong buy from Salomon Brothers high-yield research on Harrah's Jazz paper along with growing demand for the $1.1 billion Atlantic City Associates/Trump Atlantic City Funding new issue boosted outstanding casino paper in the secondary market.

Bally Entertainment 9.25 percent paper was bid up at 103 while Hollywood Casinos also traded up at a 94-1/4 bid, traders said.

Other active issues included Ralphs Grocery Co 11.0 percent paper, bid up 1/2 point to 90, and Fleming Cos 10-5/8 percent paper which held firm at 87-1/2.

In the primary market, two stalwart issuers tapped the market. Fleet Financial Group issued $300 million in subordinated notes due April 15, 2006, said lead manager UBS Securities.

The notes have a 7.125 percent coupon and were priced at 99.214 to yield 7.236 percent or 65 basis points over comparable US Treasuries. Noncallable for life, the notes are rated A3/BBB-plus.

Also, General Motors Corp issued $500 million debentures due April 15, 2016, said lead manager JP Morgan Securities.

The debentures have a 7.70 percent coupon and were priced at 99.879 to yield 7.712 percent or 77 basis points over the off-the-run 30-year US Treasury. Noncallable for life, the debentures are rated A3/A-minus.

In the government market, the 30-year long bond closed off 1-8/32 at 88-04/32 to yield 6.95 percent.-Reuter