With buyers driving yields on the safest of government paper to the lowest so far in 2011, some investors were busy trying to stay out of trouble and lightening the load somewhat on financial names possibly likely to suffer should the economy hit a rocky patch. Most active names today included Morgan Stanley, Goldman Sachs, Bank of America and JP Morgan.
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Investment Grade -
Goldman Sachs Inc. (GS) – Several of Goldman’s paper issues were among the most actively traded again Tuesday and as we’ve noted during the last several sessions, spreads continue to widen not only for the investment banker, but for the industry as a whole. Goldman has suffered at the hands of a fresh wave of pessimism surrounding the future of its CEO Blankfein and whether there will be further blood on account of Goldman’s involvement in the mortgage market at the peak of the crisis. Bloomberg news today reports that Goldman is one of three investment names set to meet with the office of New York Attorney General in coming weeks to shed light on its actions during the crisis. Shares nevertheless remained steady Tuesday with only a minor loss while the yield on its October 2037 maturity shot up to 6.59% adding six basis points. Goldman’s 6% paper maturing June 2020 also rose in yield to 5% on volume of almost $60mm.
CVS Caremark Corp. (CVS) – The recently issued tranche of longer-dated paper from CVS continues to find favor among investors with almost $30mm trading places today in the electronically traded market. The $950mm issue maturing May 2041 was issued to repurchase commercial paper and as yields fell again Tuesday the Baa2-listing saw its yield dip to 5.77% from 5.82% as at Monday’s close.
High Yield -
Burger King Corp. (BKC) – Spreads narrowed for the fast-food provider Tuesday with buyers picking up about $10mm of its paper driving the yield lower by 20-basis points to 8.25%. The company in the hands of 3G Capital last saw yields bottom out at 8.51% ahead of quarterly earnings last week. Investors seem undeterred by the combination of declining sales and rising input costs at the drive-through window. Growing interest expense on debt raised in its buyout was the driving factor behind a first-quarter loss of $6.8mm compared to a profit of $41mm in the comparable quarter. Burger King’s B3-rated paper gained Tuesday sending the yield on its 9.875% coupon bond maturing October 2018 down to 8.25% from 8.55% as at Monday’s close. The yield over treasuries has compressed by 20 basis points since Friday to 514 basis points.
Toll Brothers (TOL) – A 10% slide in new housing starts during April may have helped sour sentiment in the equity market as a further sliver of bad news resounded with investors, but the impact on luxury-home builder Toll wasn’t the same. Its stock and corporate paper advanced. Shares in the company added 0.3% to $20.23 while at least $15mm of its 8.91% Ba1-rated paper maturing in October 2017 found a new home among buyers. The price advanced a tad sending the yield lower to 5.55%.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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