(Bloomberg) ? Bonds of insurance brokers such as Marsh & McLennan Cos., the world?s largest insurance brokerage, weakened on concerns about California?s investigation into possible bid rigging by insurance companies and brokers.

Marsh?s 5.375 percent notes maturing in 2014 declined, as the spread widened about 5 basis points to yield 168 basis points more than Treasuries, traders said. New York-based Marsh is rated Baa2 by Moody?s Investors Service and BBB+ by Standard & Poor?s, the second-lowest and third-lowest investment-grade ratings, respectively.

An insurance investigation in California, announced late Friday by state Attorney General Bill Lockyer, renewed concerns about the industry after Marsh forced its chief executive to step down. The resignation came in the wake of New York Attorney General Eliot Spitzer?s opening of an investigation of Marsh last month.

?Another state expanding the probe increases exposure to the overall industry,? said Mark McCarthy, director of credit strategy at FTN Financial Securities Corp. in New York. ?Insurance bonds may weaken as more lawsuits mean more potential for greater liability.?

Lockyer said on Friday the state will look into whether insurers and the brokers they deal with are violating California?s antitrust and unfair competition laws by fixing bids for customers, which could inflate insurance costs.

Bonds of insurance brokers such as Marsh may draw stronger demand after declining last month on Spitzer?s investigation. Marsh?s 5.875 percent bonds maturing in 2033 had the second- worst return last month, 9.4 percent, among 3,684 investment- grade company debt issues tracked by Merrill Lynch & Co. Rival Aon Corp.?s 8.205 percent notes maturing in 2027 fell 9.8 percent, the biggest drop. Returns are through Oct. 27.

Aon?s 7.375 percent notes maturing in 2012 yield about 190 basis points more than Treasuries, up from a spread of 110 basis points on October 13, according to Trace, the bond price reporting system of the NASD. An antitrust lawsuit may be brought against Aon by Spitzer?s office, according to a report in the New York Times website.

Aon, based in Chicago, is the world?s second largest insurance broker, behind Marsh. The company?s debt is rated Baa2 by Moody?s and BBB+ by S&P, the second and third lowest investment grade credit ratings.

Wider yield spreads mean investors more extra yield to compensate them for the perceived greater risk of owning a company?s bonds rather than safe Treasuries.

Trading and issuance of corporate bonds may be limited as tomorrow?s US presidential election and the government?s October jobs report on November 5 may delay some borrowing decisions. President George W. Bush and Democratic challenger Senator John Kerry are deadlocked in three national polls of likely voters, as of late yesterday.

?We?re seeing a lull with the US election,? McCarthy said.

Bush led Kerry 49 percent to 47 percent in a CNN/USA Today/Gallup poll of likely voters nationally, by 48 percent to 47 percent in a Wall Street Journal/NBC News poll, and by 49 percent to 46 percent in a CBS News/New York Times survey. The polls were conducted over a period spanning October 28 through 31. All the results were within the error margin of the polls.

Labor Department figures this week are forecast to show the economy in October added 175,000 jobs, the most since May, according the median estimate in a Bloomberg survey.

Corporate bonds were little changed today after an industry report showed manufacturing growth unexpectedly slowed in October.

The Institute for Supply Management?s factory index fell to 56.8 for October from 58.5 in September. The gauge has exceeded 50, showing expansion, since June 2003. The median forecast of economists polled by Bloomberg News was for an unchanged reading.

Among this week?s expected borrowers, Rockwood Specialties Inc., the chemical company that acquired four units of German rival Dynamit Nobel in September, plans to sell $625 million in bonds on November 5. Proceeds from Rockwood?s sale of high-risk, high- yield bonds will be used to pay debt, the Princeton, New Jersey- based company said. The ten-year note offering on Nov. 5 will be denominated in euros and dollars. The company?s unsecured debt ratings are B2 by Moody?s and B- by S&P. US ten-year interest-rate swap spreads, a measure for pricing debt, widened 0.75 basis points to 43.75 basis points, according to Bloomberg data. The swap rate is what investors pay to get floating-interest payments at money-market rates. The gap between that and a benchmark bond yield is the swap spread. Companies use swaps to match the type of interest rates on their debt with the rates on their income, which can help lower borrowing costs.