With widespread fears over potential spillover from the European sovereign debt crisis, bonds remain supported. However, the fact that equity investors seem so complacent having put a snapback rally in place, has kept early summer corporate bond activity limited at the start of the week. Dealers report a slight improvement in demand for domestic financial issues while retaining a loathing for bonds issued by financial names domiciled overseas.
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Investment Grade –
General Electric (GE) – There was a sudden burst of late-morning demand for General Electric’s one-year maturity with around $37mm over lunch time. The conglomerate’s June 2012 maturity currently yields 0.6% having gone out at 0.7% into the weekend. With shorter term government note yields actually rising today GE’s premium over government issued debt appears to have narrowed sharply to 14 basis points on Monday. General Electric’s shares on Monday rebounded from a seven-month low.
Goldman Sachs (GS) – The investment banker’s five-and-nine year maturities were actively traded on Monday with the pair making up the second and third most actively exchanged issues. Goldman’s 6% of June 2020 traded on volume of $36mm while its 3.625% February 2016 issue traded on volume of $27mm. The rise in yields at the front of the government curve on account of a broader risk rally spilled over into Goldman’s debt. The yield to maturity on the shorter-dated paper rose by 10 pips as its premium to government paper widened by three basis points, while at the 2020 maturity investors added four pips to the spread.
Anadarko Petroleum Corp. (APC) – Anadarko maintained its, by-now, customary role at the top of our high volume corporate bond scanner. Volume today was heaviest in its shorter-dated paper where investors were active among its June 2014 and June 2019 maturities. Buyers pushed up the price of its shorter maturity by 65 cents per $1,000 face value sending the yield lower to 2.08%.
Muni-Bond Corner –
Thirty-day visible supply moved up to $9.7 billion. Yields were relatively unchanged by the close of trading last week as the street digested over $5.1 billion in new issue supply. Ahead of Fourth of July celebrations the market will attempt to absorb $5.6 billion in new issue supply. Included are four large negotiated deals including $900mm from Citizens Property Insurance Corp (Florida’s largest real estate insurer) rated A2/A+ and $498mm in revenue bonds from Houston Airport System (A/A+). NYS Tobacco Settlement Fin. Corp (AA-) brings $975mm and finally Puerto Rico will issue $304mm general obligation bonds carrying ratings ranging from A3/BBB. Fitch ratings agency lowered its ratings on Detroit GO’s to B+ citing a weakened economy and city revenues alongside difficulties cutting spending. Moody’s cut ratings on Miami citing structural budget deficits and declining operating reserves to A3 from A2.
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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