London: Corporate bonds are rallying the most since the beginning of the year as Greece raised 5 billion euros (Dh24.9 billion) in a sale of 10-year bonds and US employers cut fewer jobs than forecast last month.

The extra yield investors demand to hold investment-grade bonds instead of government debt narrowed by three basis points last week to a one-month low of 165 basis points, heading for the biggest decline since the period ended January 8, according to Bank of America Merrill Lynch's Global Broad Market Corporate index. On February 17, spreads were 171 basis points. A gauge of credit risk in the US fell to a more than six-week low.

The Greek sale was a test of Prime Minister George Papandreou's austerity measures designed to tame Europe's largest budget deficit, and the bonds rose in the first day of trading. European Central Bank President Jean-Claude Trichet kept the region's key interest rate unchanged on Friday and extended some economic stimulus measures to cement the recovery. In the US, the better-than-expected jobs report bolstered confidence that an economic recovery is sustainable.

Support

"Low rates and ample liquidity are clearly supportive for corporate credits and risky assets in general," said Tim Brunne, a Munich-based credit strategist at UniCredit SpA. "As long as the interest-rate curve is very low, at the short end in particular, holding cash is a prohibitive strategy."

Elsewhere in credit markets, American International Group Inc.'s aircraft-leasing unit is seeking to add a $550 million (Dh2.02 billion) term loan to bank financing, boosting its first debt sale through capital markets since AIG's 2008 US bailout to $1.3 billion, according to a person familiar with the negotiations. Bank of America Corp. and Goldman Sachs Group Inc. are arranging the financing for International Lease Finance Corp.

The Federal Deposit Insurance Corp. (FDIC) sold $1.81 billion of debt in a two-part sale, backed by mortgage securities. The sale consists of $1.33 billion of floating-rate notes that yield 55 basis points more than the one-month London interbank offered rate (Libor), and $480.1 million of fixed-rate notes that yield 3.367 per cent, or 85 basis points more than the benchmark swap rate.

In the final round of its programme to unlock the market for asset-backed securities, the Federal Reserve received $4.1 billion in loan requests from investors, the most in six months. A total of $1.8 billion of requests for financing of student-loan securities accounted for the largest category of debt sought, the New York Fed said. CIT Group Inc., SLM Corp., Ford Motor Co. and Chrysler Financial Corp. were among borrowers selling debt eligible for the Fed's Term Asset-Backed Securities Loan Facility.

Investors ploughed a record $2.6 billion into global bond funds in the week ended March 3.