Market confidence on Australian companies improved further as credit-default bonds fell anew.

According to data from the Markit iTraxx, Australia index declined 2.5 basis points to 116.5 as of 9:51 a.m. in Sydney.

As credit default swap indices are used as benchmarks to protect bonds from defaults and market speculation, the decline in its value means an increase in the perception of creditworthiness of a bonds issuer or borrower.

Investors and corporate bonds

Companies have turned to the bond markets to finance their operational and expansion activities because of the low interest rates. Last week, investors snapped some $5-billion worth of bonds issued by Microsoft.

Jim Casey, managing director at JPMorgan, explained that the bond market seemed to be way to go because absolute interest rates are at historic lows and credit spreads are also performing higher historic average.

He noted that although the average yield of a US investment-grade bond is about 3.75 percent, down from about 6 percent in June 2007, the average yields The average spread on the Barclays Capital US investment-grade corporate bond index is 186 basis points or higher than the 90 basis points posted in June 2007.

This makes investment in bonds more appealing because investors are compensated for all types of volatilities.

Analysts are more comfortable with the spreads offered by corporate bonds than that of government treasuries because interest rate trends are still at the downside and concerns that a global recovery is yet to be seen in the near term.