US corporate bonds held near the tightest levels since June on Friday and more spread tightening may be likely this year on increased appetite for risk. Corporate bond spreads were little changed after the US Thanksgiving holiday on Thursday and an early market close on Friday, according to MarketAxess and Merrill Lynch data.
High-grade spreads have narrowed 6 basis points in the last three months to 92 basis points, near the tightest since June. High-yield spreads last traded at 314 basis points, 41 basis points less than levels in September, Merrill data show.
"Neither investment grade credit nor the broad equity market is rich by historical standards and corporate sector profitability and balance sheet health likely will remain elevated," Citigroup Inc said in a November 22 report. Both asset classes "would benefit notably from more robust risk appetites that would be associated with diminished concerns about inflation."
Trading volume was light, and spreads were unchanged for the most actively traded bonds of Equity Office Properties Trust, General Electric and Lehman Brothers, according to MarketAxess data. Bonds of Equity Office Properties Trust got a boost this week after private equity firm Blackstone Group said it expects to tender for the bonds when it acquires the US office building owner.
Blackstone agreed to buy Equity Office Properties for $20 billion, or $36 billion including debt, billing it as the largest private equity deal ever. Yield spreads on EOP's 5.875 percent notes due in 2013, unchanged on Friday, fell by about a half percentage point over Treasuries this week to about 44 basis points.
Bonds of General Motors Corp were slightly higher on Friday after billionaire Kirk Kerkorian's Tracinda Corp investment firm reported on Wednesday cutting its GM stake to 7.4 percent from 9.9 percent. GM's 8.375 percent bonds maturing in 2033 rose less than a cent on the dollar to about 90 cents on Friday. There were no trades after the Tracinda announcement on Wednesday, according to MarketAxess data. The bond market closes at 2 pm (1900 GMT) on Friday in observance of the US holiday.
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