US corporate bond spreads tightened on Wednesday, as an improving outlook for the financial sector helped the market extend a protracted rally despite a month of heavy supply. Month-to-date through Tuesday, investment-grade corporate bond issuance totalled $78.3 billion, topping every month since May a year ago, when $143.3 billion was sold, according to Thomson Reuters data.
Companies are taking advantage of low borrowing costs as signs of a stabilising economy and successful capital-raising by banks improve investors appetite for risk, including corporate bonds, pushing yields down. "Even though there's a lot of supply in the chute, spreads have actually done very well and continue to do so," said Richard Lee, head of fixed income at New York broker-dealer Wall Street Access.
Over the past month, high-grade corporate bond spreads have tightened by about 100 basis points to 416 basis points more than Treasuries, according to Merrill Lynch data.New issues also contin ue to perform well, a sign of strong demand. A 10-year note priced on Wednesday by Norfolk Southern Corp with a spread of 237.5 basis points more than Treasuries was trading about 12 basis points tighter, Lee said.
Goldman Sachs was the latest to sell corporate bonds without a government guarantee, issuing $1 billion in 10-year notes on Wednesday, according to IFR, a Thomson Reuters service. In the high-yield market, General Motors' bonds were little changed as the automaker moved closer to filing the largest US industrial bankruptcy after a bond exchange failed. GM's 8.375 percent bonds due in 2033 fell to 7.125 cents on the dollar from 7.75 on Tuesday, according to MarketAxess.
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