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US Corp Bonds-Market tighter on better earnings

By Dena Aubin

NEW YORK, April 23 (Reuters) - Upbeat earnings reports pushed spreads on U.S. corporate bonds tighter on Wednesday, with the telecommunications sector leading the way after long-distance leader AT&T Corp. swung to a profit in the quarter.

"It is a feeding frenzy in corporate paper," Andy Brenner, head of institutional fixed-income at Investec Ernst & Co. said in a research note on Wednesday. "Dealers (are) all complaining about not being able to replace the paper they have sold."

Spreads, the yield difference between corporate bonds and U.S. Treasuries, tightened by about 0.03 to 0.05 percentage point overall, traders said. Spreads in the more volatile auto sector tightened by about 0.15 percentage point, while some telecom bonds tightened by 0.50 percentage point, traders said.

AT&T , the No. 1 U.S. long-distance telephone company, posted a first-quarter profit despite lower revenues and said it expected to meet or exceed forecasts for the full year.

AT&T's 7.8 percent notes due in 2011 rose about three points to 107 cents on the dollar, from 104 cents on Tuesday, according to MarketAxess.

Nextel Communications Inc.'s bonds also posted gains after the fifth-largest wireless telephone company posted a 21 percent growth in revenues for the quarter. Nextel's 9.375 percent notes due in 2009 traded at 107 cents on the dollar, up from 106 late Tuesday, MarketAxess reported.

Automakers' bonds saw a second day of brisk tightening. Ford Motor Credit Co.'s 7.25 percent notes due in 2011 traded at 3.25 percentage points more than Treasuries, compared with a 3.40 percentage point spread on Tuesday, according to MarketAxess. Spreads on that issue have narrowed by more than 2 percentage points over the past six months.

In the government market, Treasury prices fell as a resurgent equity market gave investors fewer reasons to buy safe-haven debt. Benchmark Treasury 10-year notes fell 5/32, yielding 3.986 percent.

Better-than-expected earnings added momentum to a rally in corporate bonds that began in October.

Corporate bonds on average now yield just 1.39 percentage points more than Treasuries, after narrowing by 1.28 percentage points since mid-October and 0.17 percentage points in April alone, according to Merrill Lynch & Co.

"In the past six years, spreads have never before moved with such impetus to tighten, even in the bull run of 2001," fixed-income research service CreditSights Inc. said in a report on Wednesday.

Strong demand for corporate bonds has been good news for the few issuers in the market this week. Wal-Mart Stores Inc., which sold $1.5 billion of 10-year notes on Tuesday at a spread of 0.58 percentage points more than Treasuries, saw those spreads narrow to just 0.50 percentage points on Wednesday, traders said.

In Wednesday's new issue business, Louisiana-based utility holding company Cleco Corp. and its main operating subsidiary Cleco Power Llc sold $175 million of notes.

To see other recent or upcoming corporate bond sales, click on [nNEUBD4]