US corporate bond spreads extend rally

US corporate bond spreads ended the week on a strong tone, tightening further on Friday as investors were content to sit tight after the 11th week of a spring rally that seems poised to continue. Cash spreads tightened about 2-3 basis points, traders said, while the main index of investment-grade credit default swaps tightened 3 basis points to 124 basis points, according to Phoenix Partners Group.
"The market continues to be in great shape," said Vincent Murray, head of US fixed-income syndication at Mizuho Securities USA in New York. Investment-grade corporate bond spreads tightened 12 basis points for the week to Thursday to 340 basis points over comparable Treasuries, according to Merrill Lynch data.
While there were only a few small new debt sales on Friday, trading activity on Dell Inc's $1 billion two-part note sale remained substantial, with the three-year tranche reaching around 120-125 basis points over comparable Treasuries after pricing on Wednesday at 150 basis points, Murray said.
Dell's 10-year tranche drifted back to its pricing level of 195 basis points over Treasuries after tightening as much as 15 basis points since Wednesday, he said. Dell sold $400 million of three-year notes and $600 million of 10-year notes.
The primary market is expected to see several deals next week as issuers vie to take advantage of the high demand for new debt sales. Demand for new paper has accelerated over the past several weeks to such a point that concessions spread premiums issuers pay over their outstanding debt have nearly disappeared. "Investors are ravenous when deals come; I don't think you could have everything aligned much well than it is now," Murray said.
In the high yield sector, bonds issued by Claire's Stores Inc rallied after reporting earnings late on Thursday that beat expectations, KDP Investment Advisors of Montpellier, Vermont said in a research note. The fashion accessory and jewellery retailer's 9.25 percent bonds due in 2015 gained 6 cents on the dollar to trade at 60 cents, while its 10.5 percent notes due in 2017 gained 4.5 cents on the dollar to trade at 50 cents, KDP said. Apollo Management LP-owned Claire's reported a net loss of $29 million, down from $35.6 million in the same quarter last year.
Strength in Claire's bonds managed to pull notes issued by sector-peer Bon-Ton Stores Inc higher, too. Bon-Ton's 10.25 percent notes due in 2014 gained 2.75 cents on the dollar to trade at 53 cents, KDP said.