A $1bn asset-backed bond deal has got the best-ever pricing, showing the investors’ interest in higher yielding assets. Investment bankers expect pricing to become tighter as demand is still increasing.

Prices on a wide range of bonds have risen as yield spreads, or the premium offered over government bond rates, have fallen to record low levels, Jennifer Hughes reported on March 2.

Asset-backed securities (ABS) - bonds backed by a poll of loans - are usually offered in tranches. Investment bankers have recently talked about contest between potential investors for higher yielding tranches of the latest deals. The latest remarkable deal was made on March 1 when a mortgage arm of Centex, a US construction company, sold $1bn in fixed and floating-rate paper.

According to observers’ expectations, spreads could become even tighter. “The idea of spreads widening just because they’re tight now isn’t on the cards; it’s all to do with the amount of money looking to invest.”

Some representatives of market insiders said that they had witnessed deals with weaker structures being priced equal to better quality deals simply because there was a big demand from investment managers.