Goldman misses earnings; big week for munis

IB Corporate Bond Brief: Earnings miss at Bank of America and Goldman Sachs

Equity prices went up and bond prices fell as investors were slightly reassured by crumbs of comfort tossed from the table by European officials ahead of a meeting on Thursday out of which many hope for groundbreaking news on sovereign debt crisis. However, bond yields edged back towards unchanged by mid-afternoon trading after German Chancellor Merkel reined in the gallivanting horse and reminded investors that Rome wasn’t built in a day and that a solution shouldn’t be expected anytime soon. Bankers bonds were still under the glare of corporate bond investors where earnings at leading names forced spreads to widen.

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

INVESTMENT GRADE:

Bank of America Corp. (BAC) – Bonds issued by Bank of America with a face value of around $160mm changed hands after the company announced a second-quarter loss of $8.83 billion. That compares to a profit in the same period a year ago of $3.12 billion and is a direct result of the challenging mortgage market with a related charge of $1.23 per share weighing on earnings that summed to a 90 cent per share loss. No less than 12 issues of its bonds each maturing at dates between 2012 and 2021 were on the radar after earnings. Results were mixed with some issues making minor gains while other fared losses. Most active on Tuesday was Bank of America’s July 2016 maturity carrying a coupon of 3.75% where investors traded bonds worth in excess of $40mm. With almost the same value of bonds traded, Bank of America’s bond maturing in May of 2021 declined by 38 cents per $1,000 investment as the yield increased to 5.28%. Shares in the nation’s largest bank by deposits fell by 2.2% to $9.51.

Goldman Sachs (GS) – The dubious honor of most actively traded bonds on Tuesday goes to investment banker Goldman Sachs whose shares made a new 52-week low following the group’s earnings miss on Tuesday. Shares shed 1.7% to trade at $127.14 while its A1-ranked five-year debt slipped by $1.59 per $1,000 invested sending the yield up to 3.47%. Investors were disappointed by both the miss on earnings and a significant shortfall on expected revenues.

MUNI BOND CORNER:

Price discovery will take place this week with over $8.2 billion in new issuance, the largest week this year. New issue pricings provide trading levels in the market. The market is cautious ahead of this supply, anticipating upward pressure to yields. Yesterday the 10-year benchmark remained unchanged at 2.66%, 30yr at 4.32%.

Texas Public Finance Authority yesterday priced $347.3 million of general obligation and refunding bonds (AA-S&P, AAA Fitch) to yield 4.20% through 2031 at a spread of +27bps to AAA curve). The City of Frisco, Texas launched $123.4 million in general obligation refunding and improvement bonds rated Aa1 by Moodys and AA by S&P. Its bonds have two maturities with the shorter-dated issue yielding 0.15% maturing 2012 while its 4.375% issue matures 2031 and was priced at a 34 basis point premium to the AAA curve. There have been many recent recommendations to extend out along the yield curve given the municipal yield curve is approaching historic highs (401 bps 1-30yrs ). European contagion and municipal credit concerns have sparked a flight to quality in the treasury market pushing the 5-30-year curve out to 313bps.

For live corporate bond pricing and current inventory please see Bloomberg page IBCO.Customers can access Interactive Brokers corporate bond offering through their Trader Workstation platform. For clients wanting more market color or inventory details please contact Jesse Muscarello in the New Jersey office at 201-946-5431. For municipal bonds please contact John Gallagher on 203-422-3621.

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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