Investors maintain bid for investment grade corporates

Investors drove yields lower across both the U.S. treasury curve and the corporate debt market as lawmakers indicated they were in agreement over measures to raise the nation’s debt-ceiling. The bond market received a tailwind from a manufacturing report indicating that growth within the sector stalled in July adding to evidence that the economy continues to face strong cross-currents. Investors bid up bond prices and in some cases were happier to move into debt issued by companies rather than the government, where a ratings-downgrade still remains an open question.

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Non-Investment Grade –

Anadarko Petroleum Corp. (APC) – The price of crude oil fell by 1.3% in response to a fear-fuelled rally in the dollar, but also felt the loss of momentum to the manufacturing sector in the July ISM index. Shares in Anadarko loss 0.5% by comparison after the company announced the return to normal operations for several of its operating centers in the Gulf of Mexico closed ahead of the weekend on account of the approaching Tropical Storm Don. Bond buyers targeted Anadarko’s BA1-rated September 2036 issue advancing its face value by almost $3.00 per $1,000 invested and driving down its yield by 19 basis points to 5.67%. Investors made Anadarko’s issue the most active of the session within the non-investment grade universe while its sliding yield outpaced the performance of the long bond, where the bellwether yield slipped by just five basis points.

Investment Grade -

CVS Caremark Corp. (CVS) – Bond-buyers took to three CVS-debt issues ahead of earnings before the market opens on Thursday. Shares in the integrated pharmacy health care provider came within 6.3% of its recent 52-week high following adoption by analysts at JPMorgan to its Focus List for clients. The shares price recently traded in positive territory despite a down day for the broader market. Bond buyers targeted three specific maturities with the May 2021 the most actively bought with $34mm changing hands. Buyers advanced prices sending the yield down by eight basis points to 3.84% narrowly outpacing a seven basis point dip in treasury notes of similar maturities. The bigger move came at its far-dated maturities where yields fell by twice as much as the U.S. long bond, which lost five basis points at 4.05%. Yield-hungry clients bought outstanding CVS bonds maturing in September 2039 and May 2041 where yields lost 10 basis points to 5.44%.

Lockheed Martin Corp. (LMT) – An advance of almost $1.00 to the defense-manufacturer’s September 2036 maturity helped its yield outpace gains made on the U.S. long bond. Buyers paid up for $17.5mm of Lockheed Martin’s paper on Monday reaching for lesser-ranked investment grade issues. Lockheed is ranked Baa1 at Moody’s.

Devon Energy Corp. (DVN) – Equally active were bonds issued by energy-producer Devon where buyers reached for its 30-year issue maturing July 2041. The 30—year bond issued in the first week of July carrying a 5.6% coupon and ranked Baa1 at Moody’s has only once traded at par since its debut. Today the price matched its highest traded on Friday sending the yield down to 5.21%.

Muni-Bond Corner – Thirty-day is at $5.6 billion. Muni issue is expected to be at $4.2 billion this week led by a midweek New York City Transitional Finance Authority $900mm deal. New York City personal income and sales taxes secure the bonds Aa1-rated bonds. It is possible sales jump sharply to over $10 billion next week with the successful passage of the debt ceiling bill. August has some reinvestment money coming back into the market. The main concern in the municipal market, which is not priced into the market, is a ratings downgrade for U.S. debt, which would produce a domino effect on many state and local issuers.

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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