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US corporate bond spreads ended a stellar 2009 firmer as both stocks and US Treasury debt prices eased. "It feels good out there, everything is quiet but definitely firm," said one trader in New York. Company bonds have posted meteoric gains this year in the wake of the market panic after Lehman Brothers collapsed in late 2008.
US investment-grade corporate bonds returned more than 20 percent in 2009, the best annual returns since 1995's 21.6 percent, according Bank of America Merrill Lynch data. Meanwhile, high-yield, or "junk" rated bonds, returned a record 57.4 percent this year.
Investor appetite for corporate debt grew steadily throughout the year, pushing investment-grade yield spreads over Treasuries to a two-year low of 190 basis points on Wednesday, according to the bank's data. Further highlighting investors' renewed appetite for risk, junk bond spreads over Treasuries rallied more than 1,500 basis points tighter from a year ago to 650 basis points over Treasuries on Wednesday.
Many investors are expecting corporate bond issuers to jump as soon as possible on the high demand for debt before interest costs start climbing. Thursday's fall in Treasury prices, and subsequent rise in yields, could prompt many to come to market as soon as late next week. "With the fear of rates rising, I think next week will be busier than people believe" for new debt sales, the trader said.

Copyright Reuters, 2010

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