US corporate bonds wrapped up the week with a firm tone on Friday after the market absorbed more than $21 billion of supply for the week, with new deals performing well in a sign of strong demand. The supply surge is expected to continue next week, with Anadarko Petroleum already in the pipeline with a $5 billion three-part sale.
"There's a lot of demand - both traditional domestic demand from insurance companies and money managers like myself, but also tremendous demand from foreign buyers," said Robert Bishop," fixed-income portfolio manager at Seneca Capital Management in San Francisco. On the issuer side, companies may be completing their financings early to avoid being last in line in a month of expected heavy supply, he said.
"Besides the usual reason, that you like to be the first through the door, rather than the last, you also have the Fed coming up on the 20th," Bishop said. Scheduled to decide on interest rates later this month, the Federal Reserve is expected to keep rates steady at 5.25 percent after pausing in August after tightening rates since June 2004.
The corporate bond market should be able to digest September's heavy supply, "but I think ultimately it will take a concession to get it all done," Bishop said.
Bank of America has forecast about $70 billion to $80 billion in corporate bond sales could hit the market in September. Sales normally taper off for late summer vacations and gather speed in September ahead of the Thanksgiving and Christmas holidays. Spreads on the week's new issues were one to two basis points firmer on Friday, and bids overall in the secondary market were firm, a trader said.
"It's been a pretty good week for corporates," said the trader. "High-yield, investment grade - it doesn't matter what sector you're talking about, they've all performed extremely well."
Spreads on 10-year notes sold on Thursday by Walt Disney Co have tightened by 0.01 percentage point to about 0.87 percentage point over Treasuries, while 10-year notes sold on Thursday by CIT Group Inc also tightened by 0.01 percentage point to about 1.06 percentage points, the trader said.
In other markets, Treasury prices rose as a lack of economic data this week allowed the market to resume a bull run touched off by expectations of slower growth. Benchmark 10-year Treasuries rose 3/32, yielding 4.78 percent.