Salient to Investors:

Bank of America Merrill Lynch index data show the extra yield investors demand to own corporates instead of similar-maturity Treasuries has narrowed 31 basis points this year to 200 basis points, the lowest since October 2007.

ICI data shows fund managers favoring corporate debt over government-backed securities by the most since 2009.

UBS sees losses for investment-grade debt in 2014 even as spreads continue to contract.

Mark McDonnell at Hillswick Asset Mgmt is underweight corporate bonds.

Matthew Mish et al at UBS said spreads on investment-grade debt in the US may narrow an additional 15 basis points in 2014, while junk bonds may contract another 20 basis points. Mish said people have a lot of cash and a willingness to put it to work and earn more than zero. UBS last month forecast a 2014 return of 2.1 percent for speculative-grade debt and a 0.9 percent loss for investment-grade securities.

Gibson Smith at Janus Capital said credit in aggregate has been a wonderful place to be over the last 4 year, but there are fewer opportunities today than there even a year ago.

Gregory Kamford at RBS said demand for corporate debt reflects the improved finances of borrowers as corporates are still fundamentally sound and in better health than the last time spreads reached these levels – current spreads are more justifiable.

S&P 500 Index companies have reduced debt loads to 3.5 times EBITDA from 5.4 times in 2007.

Thomas Urano at Sage Advisory Services favors corporates saying the only way that nominal rates continue to march higher is if the economy shows growth and acceleration which would aid spread contraction and help counter the effect of rising rates.

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