Weak Europe, weak stocks, weaker bonds

Nervousness grew on Monday with equity markets already punch-drunk from Friday’s weak U.S. payroll report forced to take a slew of heavyweight punches to the head at the start of what already feels like it will be a long week. European woes accelerated over the weekend with the prospect of a sovereign default appearing closer than at the time of the successful political vote in Greece that ratified a move to deal with that nation’s towering debt burden. A surge in the cost of government borrowing across the region’s peripheral nations has sent a new wave of fears across the world with investors finding little appealing in U.S. corporations with government bonds left to make all the running. As they do so the spread between the two is widening out as investors find it tougher to make the decision to buy corporate paper in light of diminishing risk appetite.

Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/p.php?f=daily_analysis

Investment Grade -

Amgen Inc. (AMGN) – Shares are lower in Amgen on a sticky day for equities. The company will pay close to $1 billion to fellow biotech company Micromet as the two agree to collaborate in the research of three unnamed tumor targets. Amgen gets to select two of those three after testing in order to develop and commercialize effective antibodies. Amgen's 10-year paper rose, but failed to match the bid caught by benchmark issues with the spread between the two widening by eight basis points to 1.01%. Amgen was one of the hottest investment grade issues on Monday with its price advancing by 50 cents per $1,000 investment.

ArcelorMittal (MT) – The yield-to-maturity on ArcelorMittal’s thirty-year issue rose after the world’s largest steelmaker announced a joint-bid for Australian coalminer, Macarthur Coal Ltd. The bid for Macarthur together with St. Louis-based Peabody Energy Corporation delivers a potential 40% premium to Queensland’s largest coal producer and offers a potential Australian foothold for the pair at a time when prices are towards an all-time high. Around $45mm of ArcelorMittal’s March 2041 maturity changed hands pushing the yield on its Baa3-rated paper higher to 6.85% from a close of 6.77% on Friday. Meanwhile the benchmark U.S. 30-year long-bond traded in the opposite direction with its yield sliding by seven basis points to 4.21% forcing a 15 basis point widening in the rift between the two issues.

Muni-Bond Corner – Downgrades for municipal debt outnumbered upgrades by a 3-1 margin according to a Moody’s study. That’s equivalent to $71.6 billion in downgrades to only $4.2 billion worth of upgrades. Noteworthy recent downgrades have come across large names including New Jersey, Hawaii and Cook County of Illinois.

Following three weeks of net inflows, municipal bond markets saw a net outflow of $272mm during the last seven days. After a quiet week new issuance should be over $5 billion and compares to less than $1billion last week. Thirty-day total visible supply stands at $9.3 billion. The large deals this week include $760mm from New York Dormitory Authority, $598mm by Michigan Building Authority, $300mm general obligation bonds from Honolulu and $241mm from Charleston South Carolina.

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.

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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