Upbeat economic data and rising stocks helped underpin sentiment in the US corporate bond market on Friday, pushing yield spreads a touch narrower relative to Treasuries in thin trading.
"Spreads are a little tighter but there's really no trades going on," said one corporate bond trader. "Generally, the tone of the market is firm."
Activity has been sparse this week, with many market players on holiday and no new issues on tap.
The bond markets were closed on Thursday for New Year's day and shut down early at 2 pm on Friday.
Spreads, the yield gap between corporate bonds and Treasuries, were unchanged to 0.02 percentage point tighter overall, traders said.
While few bonds changed hands this week, strategists expect corporate yield spreads to tighten once trading ramps up, thanks to ample cash in the market and investor hunger for yield.
Many investors took to the sidelines at the end of the year to lock in gains, but they are expected to begin buying again this month.
Stocks posted gains on the first trading day of 2004 after a surprisingly strong manufacturing report showed continued health in the industrial sector. The Dow Jones industrial average rose 28 points or 0.27 percent to 10,482.
The Institute for Supply Management reported that its December manufacturing index jumped to 66.2 from November's 62.8, far exceeding economists' forecasts for a 61.0 reading. A reading over 50 shows the factory sector is expanding.
"It's very positive for the overall economic outlook, suggesting continued momentum in the manufacturing sector," said John Silvia, chief economist at Wachovia Bank. The report drove investors out of safe-haven government debt, pushing US Treasury prices sharply lower.
Benchmark 10-year Treasury notes tumbled 1-1/32, yielding 4.381 percent.