Gyrations in the government bond market saw benchmark yields increase by 14 basis points above a midweek low that represented the lowest cost of borrowing so far in 2011. A resulting surge in corporate issuance has caught the financial headlines as corporate treasuries sought to tap the declining cost of funds and retire commercial paper in some cases for longer-dated debt.
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Investment Grade -
Google Inc. (GOOG) – Google stepped into the corporate bond issuance arena as a newbie earlier this week and grabbed the attention of fixed income buyers. It was as if Google deployed one of its homegrown algorithms to pick the bottom in yields to launch its well-timed issues. Its intention was to take advantage of the rally in bond prices driving yields down to bargain basement borrowing costs enabling it to refinance its commercial paper program with three, five and 10-year paper. On Thursday investor demand was high for Google’s freshly-minted Aa2-rated paper. The shorter-dated paper traded was amongst the market’s most actives in the secondary market on Thursday with more than $50mm changing hands in both. The 10-year paper was also sought with buyers pushing its price higher by $1.36 per $1,000 face value. The paper maturing May 2021 was issued earlier in the week with a coupon of 3.625% and having cheapened during the last couple of days of selling in the general debt market, is trading better today at a higher yield of 3.82%.
Best Buy Co. Inc. (BBY) – Shares in electronic retailer Best Buy are lower today by 1% at $31.86 and challenging last week’s leg higher. It was during early April that investors drove it to a 52-week low of $28.05. On Thursday our bond market scanner noted that investors might be taking the recent rally to lighten up on their holdings of Best Buy paper. Its 5.5% coupon 10-year maturity of March 2021 traded a little softer to yield 5.35%. Best Buy paper was the third most traded paper during the morning behind Google with $54mm changing hands.
Verizon Communications Inc. (VZ) – Shares in telecom-provider Verizon made a 0.8% dash higher to test overhead resistance and last traded at $37.39 Thursday, while investors sold out of its A3-rated paper. Some $24mm of its 4.6% bonds with a maturity date of April 2021 changed hands at lower prices. $1,000 in face value of its paper slipped $1.85 lifting the yield to 4.20%
High Yield -
Macy Inc. (M) – Trading volume of $21mm in paper issued by Macy’s was for the most part the most active non-investment grade Thursday, until buyers of NewPage Corp.’s paper depressed its exorbitant 122% yield further. Owners of the department store operator’s July 2015 maturity saw the value of their holdings increase by $1.625 per $1,000 investment as buyers favored Macy’s debt forcing the yield lower to 3.16%. And with shares in Macy’s extending a weekly gain returning to $30 each for the first time since December 2007, no wonder its paper is in demand.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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