Bank debt rebounds

IB Corporate Bond Brief: Banks rebound – spreads widen over Treasuries

The trading week came to a poor conclusion following an insipid employment report that sent equity prices lower and bonds higher, dragging yields down to year-to-date lows. And even then some profit taking took the shine off bonds with investors wondering how long yields could remain that low. Banking stocks rebounded and investors as appeared to find solace on banking bonds with eight of the top 10 bonds in action belonging to U.S. – listed banking issuers. Prices advanced but spreads over treasuries generally widened out.

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

INVESTMENT GRADE:

Bank of America Corp. (BAC) – Around $73mm worth of Bank of America’s May 2021 was traded making it the day’s most actively sought after bond although yielding 5.04% its price hardly budged. Against the 10-year government note its spread widened by three pips. Shares in BoA were ahead at $11.31 in afternoon trading.

Goldman Sachs (GS) – With over $50mm of its February 2016 maturity changing hands Goldman’s paper was sought after to end the week. Buyers advanced its price by 51 cents per $1,000 invested with its five-year maturity yielding 3.50%. Its shares had recovered 1.3% of its recent losses to stand at $136.07 having been put under the microscope recently on account of a having received a subpoena from Manhattan’s district attorney’s office relating to investing habits in advance of the financial crisis.

Wells Fargo & Co. (WFC) – We’ve seen Fargo paper on the move recently, but it was notably more active Friday with almost $30mm in action. Its June 2016 maturity was barely changed in price – a little softer if anything – to yield around 2.83%, while its shares missed out on the day’s financial rally sliding by 0.6% to $27.00.

Pentair Inc. (PNR) – Buyers advanced the price of Pentair’s recently issued 10-year maturing May 2021 lifting it 50 cents per $1,000 face value lowering its yield to 4.77%. That’s a whole 10 basis points lower on the day meaning Pentair’s May issue tightened seven basis points to treasuries Friday. Buyers must have determined that the Baa3-rated issue deserved greater room in their portfolio and that a 1.7% under performance since inception meant that it was being overlooked. Pentair is a diversified manufacturer and amongst other things provides electrical and electronic enclosures and professional tools.

MUNI BOND CORNER

Munis remained firm as the June reinvest period kicks in. Yields dropped 1 basis point from 2015-2035 despite the decline in Treasuries. New issue pricing yesterday included $654mm deal by the NY Dormitory Authority, rated triple-A by S&P and these were priced very aggressively. Thirty-day Visible Supply increased to $8.1 billion from $6.9 billion. Data shows a net $436mm of outflows from Municipal Bond mutual funds last week, the 29th straight decline. Investors continue to pull money out of municipal bond funds favoring individual bonds instead.

Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

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.

Comments
comments powered by Disqus