US corporate bond yield spreads edged tighter on Friday, underpinned by a sparse supply of new issuance and growing confidence that interest rates are not due for an imminent increase.
Activity was thin, however, as traders marked time ahead of an early close and long holiday weekend for Presidents Day on Monday.
"It's very slow, as you can imagine, with a half day," said one corporate bond trader. "Overall, on the week, the market's definitely better."
Spreads, the yield gap between corporate bonds and Treasuries, tightened 0.01 to 0.02 percentage point overall on Friday, traders said. Spreads have enjoyed a tightening trend since Wednesday, when Federal Reserve Chairman Alan Greenspan reassured investors that no imminent rate hike is in the works.
"Many corporate investors who stayed on the sidelines waiting for yields to rise now have no choice but to put money to work," Banc of America Securities said in a report this week.
Stable short-term rates also help corporate bonds by making the "carry trade" attractive, Banc of America said, referring to investors' practice of borrowing in the short-term market to fund purchases of longer-term corporate bonds.
Junk bonds were mostly unchanged on slow volumes, traders said.
Bonds of Revlon Inc rose for a second day after the cosmetics company said it reached agreements that would cut its $1.87 billion debt in half.
Revlon's 8.125 percent notes due in 2006 traded around 103 cents on the dollar, about two cents higher than Thursday, and 27 cents higher over the past two days, traders said.
Revlon's agreement calls for institutional shareholder Fidelity Management & Research Co and Revlon Chairman Ronald Perelman's investment firm to exchange as much as $930 million of debt for equity, removing a huge burden on the company's balance sheet.
In other markets, US Treasury prices rose as a weak reading on US consumer sentiment raised the appeal of safe-haven government debt. Benchmark Treasury 10-year notes advanced 6/32, yielding 4.05 percent.
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