Corporate bond demand soft

IB Corporate Bond Brief: Demand for financial corporate issues still soft

Bond prices retreated from earlier highs inspired by comments from lawmakers meeting in Luxembourg who “forcefully reminded” the government of Greece that in order for them to release phase five of its bailout loan, it had to make law a stringent set of austerity measures. Investors remained on edge but rising earnings at S&P 500 index components prompting some to point to under-priced valuations helped forge a revival in the stock market, which in turn weighed on bond prices sending yields higher.

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INVESTMENT GRADE:

Citigroup Inc. (C) – Most actively traded in a topsy-turvy morning were bonds issued by Citigroup maturing August 2020. Its price was little-changed but traded marginally higher on the session at 104.48 allowing its yield to ease to 4.76%. Shares in Citigroup actually stalled to $38.08 even though its paper was in good demand.

Wells Fargo & Co. (WFC) – The better tone to stocks failed to prompt a similar tone for financial stocks in general with the KBW bank index losing 0.3% while the S&P 500 index added 0.5%. Paper issued by several banks was actively traded on Monday with most issues faring price declines. Some $27mm of Wells Fargo June 2016 was traded with investors pushing the yield higher to 2.80%.

PepsiCo Inc. (PEP) – There appeared to be some fizz behind beverage-manufacturer PepsiCo’s five-year paper. Investors traded $20mm of its Aa3-rated May 2016 maturity pushing its price marginally ahead to yield 2.06% at one point. Shares in the consumer-staples company forged ahead on Monday by 0.8% to $69.24.

NON-INVESTMENT GRADE:

SLM Corp. – (SLM) – Sallie Mae’s five-year paper traded down offering a $2.00 per $1,000 face value loss of principal as investors sold its 6.25% coupon-carrying January 2016 issue. The paper was later slightly better bid taking the edge off a larger jump in its yield. By early afternoon the yield was indicated to be 5.53%. Volume of $16mm was the highest across the non-investment grade universe, while Sallie Mae’s two-and-nine-year paper was similarly marked down on Monday.

Muni-Bond Corner – State and municipalities will issue $5.5 billion in debt this week. States have slashed borrowing to address budget deficits. The biggest competitive issue this week is $920mm Georgia General Obligation bonds set to price Tuesday. Market strength continued last week and was well-exhibited by the performance of Utah’s $600mm bonds, which traded through original issue levels. The Build America Bond program (BAB) was part of the Federal bailout package where Municipalities issued taxable bonds and received a tax payment directly from the Treasury. The closure of that program at the end of last year caused new issuance to cease. The S&P Municipal BAB Select Index remains higher by more than 11% year-to-date.

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.

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