Corporate bonds gained in value in secondary trading this week as investors put their cash to work amid lessening concern that interest rates will soon rise.
Cityscape Financial Corp. and Finova Capital Corp. raised $400 million in the new-issue market, capping a week of at least $4.65 billion of new sales, including Ford Motor Co.'s $500 million of 100-year bonds.Demand for corporate bonds has been stronger these days as investors gain confidence that the economy and inflation aren't accelerating enough to justify an interest rate increase by the Federal Reserve. This outlook also prompted stocks to rally and Treasury bond yields to decline.
"Given the recent decline in interest rates and the rise in stocks, investor confidence is much stronger than it was two weeks ago," said Michael Kennedy, who helps manage $315 million in fixed-income securities at Stein, Roe & Farnham in Chicago.
Investors poured more than $2 billion into corporate bond mutual funds for the week ending Wednesday, an increase of $1.3 billion from the week prior, according to AMG Data Services. Much of that came from renewed appetite for high-yield bonds. Junk bond mutual funds saw a net inflow of $1.34 billion, the highest in at least three years.
Increased demand coupled with a relatively light number of new borrowers made outstanding corporate debt more attractive. The gap in yields between corporate bonds and Treasuries narrowed by 3 to 5 basis points over the week, said traders.
This bodes well for companies, including Norfolk Southern Corp., Owens-Illinois Inc. and Amphenol Corp., planning sales in the next week.