Bond buyers switch to Dell after healthy earnings

Government debt prices saw a positive start turn into increasing losses on Wednesday as stocks put in a positive performance inspired by a jump for crude oil prices. A healthy earnings report from Dell Computers put its paper in the spotlight on a day when yields broadly rose.

Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/p.php?f=daily_analysis.

Investment Grade -

Dell Inc. (DELL) – Computer-manufacturer Dell Inc. handsomely exceeded the consensus forecast of 43 cents delivering 49 cents even after excluding certain items worth another six cents. Better execution within a challenging consumer segment where sales are slowing saw the company extract a bigger sales ticket compared to its rivals. Dell’s strength within the more lucrative corporate sector helped deliver a 188% increase in net income to $945 million prompting the company to an upgrade to its full-year forecast. Dell’s share price jumped by more than 5% while bonds issued by the company were better bid throughout the morning. Dell’s 2.1% coupon paper maturing April 2014 was most sought after with $8mm changing hands while its 2038 maturity offering a 6.5% coupon also traded on $5mm volume. Its bonds are currently rated A2 by Moody’s.

Goldman Sachs Inc. (GS) – Bonds issued by Goldman Sachs continue to lose favor. Its share price is static despite a 0.5% gain in the broader market index. Financial issues continued to slide in general but as we previously noted an anticipated meeting at the New York office of the Attorney General to further discuss the trading practices of Goldman’s mortgage unit remains a sticking point for investors. Most actively traded was its February 2016 maturity carrying a coupon of 3.625% where $38mm changed hands. The bonds dropped 30 cents per $1,000 face value lifting its yield to 3.60%. The yield on Goldman’s 6% June 2020 paper rose to 5% on traded volume close to $25mm.

Royal Bank of Scotland (RBS) – RBS saw its ADR’s fall on the NYSE by 1.9% to $13.48 ahead of lunch, while its bonds were also offered among corporate bond dealers as yields rose. The yield on its 5.625% August 2020 Aa3-rated paper rose to around 5.20% as sellers drove the bonds down in value by $1.75 per $1,000 face value.

High Yield -

JC Penney Co. Inc. (JCP) – After a positive response to glowing earnings news earlier in the week, investors seem to have turned cold on the stock. Its shares are ahead by 1.3% to $37.20 but can’t yet rise above yesterday’s daily high point. Penney’s 6.375% October 2036 were offered by investors and lost $3.05 to 89.93 where the yield jumped on the day to 7.20%.

Chesapeake Energy Corp. (CHK) – A $3.00 surge in the price of crude oil leaves its price back in triple-digits and has carried shares in related oil explorers and refiners along for the ride. Natural gas company Chesapeake is trading 2.5% firmer at $29.83 while its February 2015 paper found plenty of buyers with its price increasing by $2.28 per $1,000 face value lowering its yield to 4.02%. More than $10mm changed hands in midweek trading after the company said its tender offer to buy Bronco Drilling Co. Inc. had been extended by a week as part of a shareholder lawsuit arising from the takeover.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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