Corporate bond trading was lackadaisical on Monday with relatively benign action, although the trend was unambiguous as financial names continued to suffer from investor selling. Government bond yields appear to have fallen just about as far as they can go with yields benefitting over the past two months with the tailwind of data indicating a slowing economy and less fear over inflation. Corporate spreads over governments continue to widen across most financial names as investors move to sidestep the sector in the event that the weight of economic slowdown negatively impacts bankers’ balance sheets.
Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/p.php?f=daily_analysis.
Investment Grade -
Goldman Sachs (GS) – Goldman’s February 2016 maturity was again one of the most-actively traded issues on Monday with $41mm changing hands. Given the general rise in bond yields, it would appear that some investors are quite happy with yields at 3.50% and have not allowed the broader trend to inflict much damage on this A1-rated paper on Monday. Its price was hardly changed at 100.50 Monday for a three-cent loss on the day. An earlier 83-cent loss per $1,000 invested in Goldman’s June 2020 issue was also pared as investors snapped it up eroding the dip to 27-cents with the bond priced at 107.15 to yield 5%.
Kraft Foods Inc. (KFT) – Kraft’s February 2020 paper issued in March of last year has maintained a reasonably close correlation with the 7-10-year index of treasury paper, although since early March has underperformed by about 1%. Investors appeared to cool their appetite for Kraft’s Baa2-rated issue this morning as yields began to rise and sold around $22mm worth of the nine-year debt. The yield added around seven basis points on the day to 4.10% with some sellers trying hard to get out of the issue.
Non-Investment Grade –
Ford Motors (F) – One investor seemed to be desperate to walk away from Ford’s three-year June 2014 8% coupon on Monday with a total of $5mm sold driving its price down by $2.38 per $1,000 invested. With falling equity prices failing to lift government bond prices, yields were noticeably firmer along the curve. However, Ford’s surrounding maturities seemed to be reasonably well supported failing to suffer such a substantial price decline. Its October 2013 paper was stable offering a 3.15% yield to maturity, while its October 2014 paper fell just 13 cents to yield 4.09%. Its August 2015 paper dropped just 25 cents to yield 5.05%. While Ford’s secondary paper is well-traded, it seems that today’s seller had to shake the tree pretty hard to originate some demand. Ford’s stock was static at $14.00 per share by lunchtime in New York.
Muni-Bond Corner -
Municipal bond yields softened by two basis points Friday as the government bond market strengthened following softer evidence from the labor market. Ten- year AAA yields closed the week at 2.60%. Muni-issuance is widely expected to pick-up during the week with a busy calendar scheduled to see approximately $5.7 billion come to market. That could put some pressure on the secondary market as a result although reinvestment proceeds could be put towards the new issue market.
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.