Government bonds reversed earlier losses with 10-year treasury yields resuming a decline to leave them firmly below 3% after S&P slashed the credit rating of Greece by three notches. The ratings agency maintained a negative outlook for the fiscal junkyard of Greece saying that the likelihood of one or more defaults over the next 12 months was high. Investors earlier sold corporate debt in favor of equities with stock buyers once again duped by a handful of weekend merger announcement that put some traders in positive mood at the outset of the session. Overall trading volume was quiet while there was some interesting activity in Canadian banker, Nova Scotia.
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Investment Grade -
Bank of Nova Scotia (BNS) – Canada’s financial powerhouses are losing steam with share prices at several big banks hovering above six-week lows. Scotia’s October 2015 paper lost ground as investors ditched $25mm in a weaker environment for corporate debt on Monday. One wonders whether or not news of a competing bid from Maple Group Acquisition Corporation for a substantial stake in the Toronto-based TMX Group is exerting pressure on the group of 13-domestic institutions hoping to spend several billion in order to keep the exchange in Canadian hands. The London Stock Exchange issued an earlier friendly bid for TMX, which the Maple Group has officially urged investors to vote against and vote instead in favor of its higher-priced offer. The sale of Bank of Nova Scotia’s paper added three pips to its premium above U.S. government paper to 54 basis points.
Non-Investment Grade –
Anadarko Petroleum Corp. (APC) – Anadarko was again towards the top of our market scanner in terms of greatest activity on what was a quiet Monday. Its four- and 24-year paper was active with the shorter-dated 2015 issue actually gaining when government bonds were lower. Demand for Anadarko paper appears immune from bad news, but as a contender for a positive ratings change, investors appear willing to keep on adding its paper to their portfolios not withstanding a decline in the price of crude oil ushered in by an announced supply increase in the Middle East over the weekend. While its shares are lower by almost 2% after Saudi Arabia said it would pump more oil, investors appear willing to buy Anadarko paper yielding 181 basis points over treasuries. That spread has widened out over the last month having been just 150 pips over three weeks ago. Mozambique state-news announced at the weekend that Anadarko was set to build a natural gas factory that will produce upwards of one billion cubic feet per day. An executive at Anadarko said that its initial $750mm investment in the country may rise to $3 billion within two years.
Muni-Bond Corner -
Thirty-day visible supply has increased to $9.2 billion with weekly issuance of $5.2 billion due to launch this week. Last week the market absorbed $7.8 billion in debt well. AAA-rated Utah State will issue $635mm in General Obligation debt this week. U.S. Municipal Bond mutual Funds saw inflows for the first time since November in a trend that could continue through the end of the second-quarter as fund managers look to deploy excess cash. Withdrawals totaled more than $30billion from mid-November through last week. One black cloud on the horizon that makes the timing for inflows suspicious is the fact that the yield curve has moved to its lowest in nine months. Included in the week’s issues is Los Angeles Department of Water & Power with its issue of $675mm AA-/AA3 paper. For municipal bonds please contact John Gallagher on 203-422-3621.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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