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US Corp bonds - spreads tighten, supply builds

By Nancy Leinfuss

NEW YORK, May 28 (Reuters) - U.S. corporate bond yields opened at narrower levels on Wednesday in light trade while the pace of issuance began to heat up as more market participants made their way back from the long Memorial Day holiday weekend, traders said.

"The market opened a touch firmer. Trading activity has picked up but still remains choppy overall," said one trader.

Spreads, the additional yield corporate bonds pay over U.S. Treasuries, tightened 0.01 to 0.02 percentage point. The average investment grade corporate bond now yields 1.32 percentage point over Treasuries, according to Merrill Lynch.

Most of Wednesday's focus so far, market players said, was on the steady stream of new issuers appearing on the calendar.

"Its been a very stealthy calendar," said Gregory Peters, corporate bond strategist at Morgan Stanley. "There's a lot of situational financing going on. We never really have a sense of what the calendar's going to look like two weeks going forward, it just develops," he said.

On Wednesday, DaimlerChrysler emerged with an unexpected $2 billion five-year global note sale. However, with the volume of auto paper already in circulation, the issuer will likely have to pay up in spread to lure investors, market players said.

"Any time auto paper comes to market it's sort of ho-hum until you see the price talk. They're going to have to price it cheap just to get it noticed," said Brian Cothran, fixed income trader at Mellon Financial Markets.

Convertible bond sales are also on the upswing. Delta Airlines is the latest name in the pipeline of supply with a $300 million offering. About $1 billion of convertible bonds were sold last week.

In the high yield sector, secondary market issues opened a touch softer as the calendar of supply continued to blossom with close to $2 billion in expected sales, traders said.

Greg Hopper, portfolio manager at Julius Baer Investment Management said despite some recent softening in high yield, following a significant rally, the sector still has more room to run. "It wouldn't be unexpected to see it pause here a little bit but it will be the pause that refreshes more than anything else so we remain constructive on it," he said.

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