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US Corp Bonds-Market unchanged, issuance tops $15 bln

By Dena Aubin

NEW YORK, Aug 23 (Reuters) - Corporate bonds wrapped up the week with most sectors unchanged on Friday, ending a seven-session rally, as the market digested the week's more than $15 billion in new bond supply.

"We might have a bit of a pause, just because of the new issues," said Mike Mutti, high-grade corporate bond strategist for Bear Stearns.

Yield spreads between corporate bonds and U.S. Treasuries were mostly unchanged, traders said. Auto spreads were unchanged to slightly wider, after tightening dramatically over the past week.

Spreads on corporate bonds overall have narrowed to about 2.21 percentage points more than Treasuries, down from a record high of 2.39 percentage points hit on Aug. 13, according to Merrill Lynch & Co.

"It was the first period in a while where we haven't had bad news on a daily basis," said Mutti. "It's pretty remarkable that the market sentiment has turned that much."

Companies avoided the market for much of July and early August as accounting scandals, an uncertain economy and bearish sentiment in equities hurt investor demand. They made up for lost time this week.

Goldman Sachs , Citgroup Inc. , National Rural Utilities and the finance arms of General Motors Corp. and Verizon Communications all brought deals of a billion dollars or more.

"The market really has changed dramatically," said Dean Poritzky, who helps manage $30 billion for State Street Research and Management in Boston. "Rates are attractive, and if the market has a good tone when we get into September, I think there will be buyers and we'll have some more deals come."

Relief that most companies met an Aug. 14 deadline for certifying their financial results with federal regulators was largely behind the change in sentiment, Poritzky said.

In the week's largest sale, General Motors Acceptance Corp., the finance arm of General Motors, sold $2.5 billion of bonds in two parts, drawing about $6 billion of orders, underwriters said.

GMAC's 10-year notes, sold at 2.65 percentage points more than Treasuries, widened to about 2.67 percentage points on Friday. Its five-year notes, sold at at 2.80 percentage points more than Treasuries, widened to about 2.85 percentage points.

In the government market, 10-year Treasuries rose 21/32 and their yields fell to 4.239 percent, as sinking equities drove investors back into bonds.

Junk bonds were unchanged to down 1/4 point, after scoring strong gains over the past two days, traders said.

"We've had a nice rally, primarily in some of the distressed telecom names," said Steve Hornstein, head of high-yield trading at Imperial Capital. The market is likely in for thin activity next week, though, ahead of the long Labor Day weekend, he said.

Investors pulled a net $44.6 million out of junk bond mutual funds in the week ended Wednesday, according to AMG Data Services. That is far less than the prior week's $110.9 million outflow, however. Junk bonds remain in the red this year, but they have risen 0.639 percent in August, according to Merrill Lynch & Co.

To see recent and upcoming sales, please click here [nNEUBD4].