Yield spreads on US corporate bonds held firm Friday after a week of sparse new bond sales left investor's appetite outpacing available supply.
In a sign of strong demand, the few bond sales clearing the market were increased in size or priced without the extra yields typically attached to new offerings to lure buyers.
"Generally speaking, this week and the previous week, a lot of the new-issue premium has been gone," said Michael Dineen, portfolio manager for MONY Capital Management.
"There's not much left on the table for an investor to profit from on a new issue."
Demand has been especially strong for crossover credits - those with only one investment-grade rating - as yields on better quality bonds grow slimmer, tempting investors to take on added risk.
Companies this week sold just $3 billion of investment-grade bonds, down from $20 billion last week, as some issuers decided to wait out volatility in benchmark Treasuries before pricing new deals.
In the secondary market, spreads were unchanged to 0.01 percentage point tighter on Friday, traders said.
In the more volatile auto sector, spreads narrowed by about 0.05 percentage point.
Corporate yield spreads have drifted around unchanged levels this month, defying some strategists expectations for a strong start to the year.
"The January rally, if anything, came in December and now we are treading water," said Simon Ballard, Bear Stearns' global credit strategist.
Spreads have been under pressure temporarily because of expectations of heavy supply, but improving credit fundamentals should drive spreads gradually tighter over the first half of the year, he said.
In the credit derivatives market, activity was light ahead of an early close Friday and holiday on Monday in observance of Martin Luther King Day, traders said. "Its's a pretty quite day because of the holiday," said one trader.
US Treasury prices fell after a report of improving consumer sentiment eroded the bid for safe-haven government debt. The University of Michigan's preliminary reading of consumer sentiment rose to 103.2 in early January, the highest since November 2000, from December's 92.6, well above economists' expectations for 94.0.
Benchmark 10-year notes declined 14/32, yielding 4.029 percent.