US corporate bond spreads ended tighter on Friday in light volume while junk bond mutual funds saw their biggest cash inflows of the year as investor confidence grew for the asset class, traders said. Investment grade bonds finished O.01 to 0.02 percentage point tighter across most maturities in light trading volume, traders said.
Among active issues, spreads on Ford Motor Credit Co's 7 percent notes due 2013, often used as benchmark for the corporate market, narrowed 0.02 percentage point to 1.97 percentage points on Friday, MarketAxess reported.
Ford Credit is a unit of Ford Motor Co.
The average investment-grade US corporate bond spread narrowed to 0.87 percentage point late Thursday, matching the tightest level of the year reached first in April, according to Merrill Lynch indexes.
Meanwhile, investors poured $601 million in new cash into US junk bond mutual funds in the latest reported week following inflows of $361 million in the previous week, according to AMG Data.
The latest cash inflows were the largest of the year into junk bond mutual funds next to the $560 million in inflows seen in early June, according to market sources.
"This is the largest inflow we've seen in 2004. This suggests a fair willingness to assume credit risk," said Christopher Garman, global high yield strategist at Merrill Lynch.
"Over the latter half, they (junk bonds) have been reliable performers, and mutual fund flows follow that performance," he added.
Junk bonds, which are rated below investment grade, have enjoyed robust demand as falling default rates have reduced their risks and boosted prices. Counting price changes and interest payments, junk bonds have returned 8.72 percent this year, the best performance of any major US bond category, according to Merrill Lynch.
The average US corporate bond high yield spread narrowed to 3.29 percentage points over Treasuries, Merrill reported.
Turning to the primary market, investment grade issuers sold about $10 billion of new supply earlier this week, ahead of a quarter point hike in official interest rates by the Federal Reserve on Wednesday.
Dealers expect some debt issuance to emerge ahead of the US Thanksgiving Day holiday in late November and before the Fed's next policy meeting in early December.
In other markets, US Treasury benchmark 10-year notes rose 12/32 in price to yield 4.19 percent.