Volumes for non-investment grade bonds steadily increased throughout 1Q12, with three spikes happening on Jan. 19th, Feb. 8 and 28 that coincided with the dates of the New York Federal Reserve’s Maiden Lane II sales, according to Bank of America Merrill Lynch data.

The four- week moving average volume in non-agency investment grade paper more than doubled in January to $1.4 billion before falling to $1.1 billion last week.

In a report, BofA Merrill analysts said that dealers have also started to increase their inventories in non investment grade paper, adding $7.1 billion in these bonds onto balance sheets so far this year.

"Despite the increase in dealer balance sheets, levels are still down by $11 billion as compared to May 2011 when TRACE data started to be reported," analysts explained in the report.


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