By Dena Aubin
NEW YORK, June 30 (Reuters) - U.S. corporate bonds opened mostly unchanged in muted trading on Monday, leaving yield spreads hugging their tightest levels of the year as hopes for continued low interest rates supported the market.
"With the Fed likely to hold interest rates low in order to ensure a recovery, we should continue to benefit from decent appetite for spread product as investors hunt out incremental yield," Bear Stearns said in a recent report.
Although the Federal Reserve's interest rate cut of just one-quarter point last week disappointed some investors, the good news is that the Fed will likely keep rates low for the foreseeable future, Bear Stearns global credit strategist Simon Ballard said.
Spreads, the extra yields that corporate bonds pay over Treasuries, opened unchanged, traders said. after tightening by about 0.01 percentage point last week.
Spreads on corporate bonds now average about 1.20 percentage points more than Treasuries, down from 1.81 percentage point at the beginning of the year, according to Merrill Lynch & Co.
Corporate spreads firmed last week despite a record $17.6 billion offering of corporate bonds and convertible debt from General Motors Corp..
Over the near term, however, the market could be vulnerable to some profit-taking as it heads into the traditional summer lull, Ballard said.
Both secondary trading and new bond sales are expected to taper off this week as the market gears down for Friday's Independence Day holiday.
About $5 billion of high-grade corporate bond supply is expected to come to market, according to Banc of America Securities, following about $18 billion last week.
In the government market, benchmark Treasury 10-year notes were unchanged, yielding 3.545 percent.
To see upcoming and recent sales, click on [nNEUBD4].