Volatile trading characterized a cautious government bond market where the 10-year U.S. Treasury surged to yield the least in seven-months before reversing to losses sending yields marginally higher on the day. Yield spreads between government and corporate debt largely narrowed as investors were comforted by more or less stable equity markets after the European Central Bank allegedly intervened to support Italian and Spanish bond markets. In the investment grade arena the most popular issues belonged to investment banking giants.
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Investment Grade -
Goldman Sachs Group Inc. (GS) – Five-year government note yields rose by two basis points as safe haven demand took a breather. The yield on Goldman’s A1-rated five-year maturing February 2016 rose by more widening the spread against the government-issue by three basis points to 1.72%. Compared to an unchanged stock index at lunchtime in New York Goldman’s shares underperformed trading down by 0.8% at $131.05. The stock remains out of fashion with its shares once again looking to test a 52-week low set at the end of June as investors avoid the risks of the financial sector. Goldman’s five-year was heavily traded according to market data with investors exchanging $63mm on Tuesday.
Morgan Stanley (MS) – Not far behind that tally was Morgan Stanley’s A2-rated five-year paper whose yield jumped by five basis points. The spread over treasuries on its A2-rated issue therefore widened by four pips to stand at 214 basis points. The investment banker’s shares remain 0.8% lower and at $21.40 traded at a fresh 52-week low on concerns for the financial sector despite a less fragile market overall on Tuesday.
Non-Investment Grade –
Anadarko Petroleum (APC) – Ba1-rated paper issued by independent oil and gas explorer Anadarko Petroleum edged a little higher tightening its premium over treasuries to 116 basis points on Tuesday. Its shares also advanced by 0.2% to $77.07 as crude oil prices staged a recovery. Anadarko’s September 2017 paper advanced by 30 cents per $1,000 invested lowering the yield-to-maturity by a couple of pips to 3.39% while its benchmark government issue remained unmoved by Tuesday’s European turmoil.
Muni-Bond Corner – Municipal bonds spent Tuesday catching up with the U.S. treasury rally as yields dropped by four basis points across the curve. The Metropolitan Transit Authority brought $390 million in A2/A-rated transportation revenue bonds to market today to yield 3.43% through maturity in 2020 representing a spread of 83 basis points above the AAA curve. That’s a tight spread for a single A-credit. Its 30-year bond launch yielding 5.13% saw such strong demand that the deal was re-priced to yield 4bps lower at the final issue. Elsewhere Citicorp anticipates increased issuance later this year as many new issues were delayed as governors worked on fiscal budgets prior to July 1st.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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