Corporate bonds followed the lead of U.S. treasuries undeterred by an ugly GDP report in which growth in the three months through March simply fell down the plughole. Undeterred by disappointment generated by the report and undaunted by the struggle toward agreement on raising the roof in the House, equity traders brought stock benchmarks back to breakeven while corporate bond yields kept track of the declines on government yields.
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Non-Investment Grade –
Boston Scientific Corp. (BSX) – We noted in Thursday’s report how popular bonds issued by the heart-implant device-maker were following the announcement of cost-saving measures. Five bond series issued by the company are in demand again on Friday as investors hope that a single upgrade might be enough to elevate the company to investment grade status following the second-quarter repayment of some outstanding debt. Most active heading into the weekend are its 2015 issue along with its 6% coupon maturing January 2020 where investors drove the yield-to-maturity lower to 4.07%. Total volume on the five issues in action today stood at almost $60mm.
Investment Grade -
Microsoft Corp. (MSFT) – The computer software giant’s longer-dated bonds were in demand as investors continued to look to alternatives to treasury bonds. Microsoft’s AAA-Moody’s rated paper maturing in February 2041 rose in price by $1.29 per $1,000 investment driving its yield lower on the day to 4.72%. The issue was the most-actively traded investment grade on Friday. Meanwhile shares in the company slid by 0.8% to $27.50.
General Electric Corp. (GE) – With almost $40mm of its five-year paper changing hands on Friday morning, bonds issued by industrial conglomerate were also in demand on Friday as investors paid 67 cents per $1,000 face value in bonds more than at Thursday’s close. The yield on its 2.95% paper maturing May 2016 slipped by several basis points lowering the yield to 2.55% while General Electric’s share price also fell by 0.8% to $17.98.
Muni-Bond Corner – Thirty-day visible supply is down to $5.9 billion with next week’s total calendar set at $3.7 billion. The slope of the yield curve remains very wide as spreads between two-30 years is 397 basis points (0.40% - 4.37%) as investors remain cautious with a potential downgrade to the sovereign rating of the U.S. government. Moody’s placed 177 top-rated issuers on review for a possible downgrade complicated by its evaluation of the current AAA-rating of U.S. debt. That review affects 162 local governments in 31 states with the largest numbers in Virginia and Massachusetts. All have exposure to federal spending changes and market volatility according to Moody’s. Recently Moody’s put AAA-rated Maryland , New Mexico, South Carolina, Tennessee and Virginia on review on account of federal spending issues. Housing Bonds are under review in Utah, Idaho, Colorado and Kentucky due to high levels of government mortgage insurance as well as high foreclosure/delinquency rates.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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