US HIGH YIELD-Risk appetite hardy as supply swells

By Dena Aubin

NEW YORK, March 23 (Reuters) - Low-rated U.S. companies are selling bonds at a record pace, a sign investors are still willing to take on risk despite a recent global equities sell-off and mounting losses in the subprime mortgage market.

Debt issuance year to date by speculative-rated U.S. companies soared to $34.4 billion through Tuesday, up 71 percent from the same period in 2006 and the busiest beginning to a year ever, according to financial data provider Dealogic.

"Even though there's been a massive amount of issuance, it has not really sapped up the excess liquidity in the market," said Jeff Rowbottom, head of the U.S. high-yield syndicate at Barclays Capital, in New York. "The market is extremely deep at this point."

Spending on acquisitions, especially by private equity firms, is the big driver of issuance, said Jody Drulard, managing director at Dealogic, in New York.

"So long as the financial sponsors can continue to get funding in the bank debt market and the high-yield market, it will continue," Drulard said.

The strong performance of junk or high-yield bonds and more recently, signs that the Federal Reserve may be closer to interest-rate cuts, are stoking demand, strategists said.

COUNTING ON FED ACTION

"The Fed indicated that if they thought the economy was, in fact, weak, they would take appropriate action," said Kingman Penniman, president of high-yield research firm KDP Investment Advisors, in Montpelier, Vermont. "From a high-yield perspective, that gives a comfort level."