Bonds lost favor with investors as a wave of optimism swept across the sea of investment opportunities as hopes for a settlement to the European sovereign debt crisis rose. The allure of fixed income payments suddenly fell out of favor as the dollar declined and riskier assets suddenly returned to favor. But the risk-on appeal of stocks helped spark a more active session for corporate debt where the three-most actively traded issues easily topped the $100mm market by lunchtime in New York.
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Investment Grade –
PepsiCo Inc. (PEP) – Five-year duration bonds seemed to be the flavor of a busier than usual session. A second surge for equity prices helped push back rising bond prices that helped drive yields to the lowest since December. Food and beverage-maker PepsiCo is reportedly launching its first advertising makeover in three years according to the Wall Street Journal. Last year the flagship Pepsi-cola drink fell to ‘an embarrassing third-place’ says the Journal behind Coke and Diet Coke. PepsiCo’s May 2016 maturity was actively-traded on volume of $42mm while its yield matched a rise in the benchmark five-year Treasury as its premium remained at 54 basis points. The premium over government paper had narrowed throughout June as the spread declined from 63 pips to 54 on Tuesday.
BP Capital Markets (BPLN) – Third most actively traded bonds on the session were BP’s secondaries maturing in just two-years. BP’s November 2013 maturity added 21 cents per $1,000 investment with investors driving its yield down by four basis points on the session to stand at 1.55%. Around $28mm of BP’s A2-rated paper changed hands among investors on Tuesday. Shares in the company advanced 48cents to $42.74.
AT&T Inc. (T) –AT&T’s May 2016 maturity may appear to have fallen sharply but the jump in its yield was largely in-keeping with the broad rise in yields on Tuesday. The issue traded on volume of $42mm by early afternoon with its yield gaining to 2.50% for a jump of 13 basis points, matching a decline in government bonds where yields shot-up by as much.
Muni-Bond Corner –
Municipal bonds are outperforming Treasuries on the downside over the course of the last two days. Municipal yields have been adjusted 2-4 bps higher today as the market attempts to take down new supply. Houston Airport System is pricing $498mm in fresh bonds today. Tomorrow brings larger issues to include $900mm of Citizens Property Insurance and NYS Tobacco Settlement Fin. Corp. These new deals should see decent concessions on account of them being lower credit deals. New Jersey is lining up a $2.5 billion line of credit with JPMorgan as an insurance policy for the next six months to cover a potential shortage of cash to cover operating expenses in the early part of the next fiscal year, which begins Friday. The borrowing will be repaid by RANs (revenue anticipation notes) that the state will issue and be repaid by tax collections.
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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