One measure of investor fear, two-year interest-rate swap spreads
, fell last week to 34.13 basis points, the narrowest since May 13 and down from 52.25 on May 24. Swap spreads reflect the difference between the rate to exchange floating for fixed interest payments and Treasury yields for two years.
Ally Bank, part of GMAC Inc., and Banco Santander SA
sold $1.95 billion of bonds derived from auto loans as the asset-backed debt market also showed signs of a revival. Emerging-market bonds rallied.
“It’s likely that spreads will grind tighter on more days than not,” JPMorgan credit strategists led by Eric Beinstein
said in a report dated June 18. “But the list of risks isn’t diminishing.”
“Sentiment has improved over prior weeks,” said Chris Sullivan
, chief investment officer at the United Nations Federal Credit Union in New York. “Spreads have managed to retrace some of their earlier widening, but I think further improvement from here will be conditional on a relatively stable interest-rate environment and fundamentals still supportive of credit.”