Strong demand held spreads firm in the US corporate bond market on Friday even after benchmark Treasury yields fell in response to a weak January US jobs report. Some investors anticipate that supply will fall short of demand in coming months, which is keeping spreads firm with a bias toward modest tightening, market participants said. "You are going to have some of the problem this year you had last year.
There is not enough new issuance to cover cash flow in the market," said Ben Matthews, portfolio manager at John Hancock Funds in Boston. "That has kept spreads as tight as they are even with the flattening yield curve."
Harold Woolley, a managing director and taxable portfolio manager at Bessemer Trust in New York City, said he does not see a lot of value in the corporate bond market but that does not mean he expects spreads to widen out soon.
Spreads held at tight levels for an extended period in the mid-1990s, he added.
"There is no particular reason for them to spring out," he said. "But there is not a lot of room for them to narrow further."
Treasuries rallied on a generally bond-friendly January jobs report, reducing the risk the Federal Reserve would accelerate its efforts to head off higher future inflation.
Thirty-year bond prices rose 1-1/2 points to yield 4.47 percent and 10-year notes gained 21/32 to yield 4.09 percent. Among selected offerings, spreads on bonds issued by Altria Group Inc, parent of Philip Morris USA, tightened dramatically after an appeals court rejected the government's bid to force cigarette makers to pay $280 billion in past profits as part of a racketeering case against the industry.
Spreads on Altria bonds due 2013 with a 7 percent coupon narrowed as much as 0.31 percentage point to 1.14 percentage point in afternoon trading, according to MarketAxess.
In the junk market, Adelphia Communications Corp bonds gained in active trading as the cable operator filed an amended plan for its bankruptcy reorganisation that would let it distribute to creditors any money it might raise from asset sales.
Adelphia bonds due 2011 with a 10.25 percent coupon traded at 94.75 cents on the dollar, up from a low of 92.50 on Thursday, according to MarketAxess.
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