Worst of U.S. credit crisis is over, Fridson says

NEW YORK (Reuters) - The worst of the U.S. credit crisis is over, and high-yield bonds are poised for modest gains in the second half of 2009, according to a veteran high-yield bond analyst.

After a record breaking six-month rally, in which the overall U.S. high-yield bond market has posted roughly 30 percent returns year-to-date, returns will be more modest in the second half of the year, Martin Fridson, chief executive officer of Fridson Investment Advisors in New York told Reuters on Thursday.

Junk bonds’ yield spreads have narrowed to about 1,057 basis points over U.S. Treasuries, from a peak of 2,182 in December 2008. Those yield spreads may trade in a range or push tighter by year end, he said.

“Certainly what the market is saying is that we are well past the worst of the credit crisis,” Fridson said, though he added that the economy would feel more repercussions in the housing and job markets.

“The backstop by the Fed has eased the counterparty fears, which were really the worst of it (the credit crisis),” Fridson said.

“There are questions down the road”, Fridson added, most notably the challenge for the Federal Reserve to find an exit strategy to remove the massive injections of liquidity without market disruptions, “but the financial crisis has been reduced,” he said.

Editing by James Dalgleish