Demand for Treasury-issued notes and bonds eased after an early morning date with Buzz Lightyear as prices headed for ‘infinity and beyond!’ With so many factors at play investors are having a hard time keeping hold of corporate debt. Plummeting yields are offering a tailwind to bond prices, but are a sign of rising fears that the economy is all the time closer and closer to tipping point. As alarm grows among investors over a slowdown in earnings and in all likelihood a permanently reduced economic growth rate, it’s proving tough to retain committed to corporate issues. Yankee banking bonds continued to get pummeled as investors took to heart a story that the New York Fed had visited Manhattan officers of European lenders to better understand whether a fresh liquidity crunch would leave them standing.
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Investment Grade -
Investors traded the most liquid names on Thursday as investment grade spreads to Treasuries widened out by around 10 basis points. That meant that most actives today included larger financial names notably at shorter maturities. Dealers noted that while equity prices were suitably stressed with benchmark indices lower by close to 5%, investors selling out of corporate paper were doing so after ongoing strength in the corporate bond market.
Bank of America (BAC) – Most active with volume climbing to $53mm was Bank of America whose shares suffered more than any other leading financial over ongoing concern that recurrent legal cases involving its handling of its mortgage and foreclosure practices might cost it up to $9 billion. Its 3.75% coupon maturing July 2016 lost about 50 cents per $1,000 investment sending the yield up to 4.79% and in the opposite direction to its treasury benchmark. The spread between the two widened by 30 basis points.
JPMorgan (JPM) – The same can’t be said of the investment banker’s bonds maturing in the same month. Investors pushed its yield down to 2.88% from a closing yield of 3.06% midweek. Investors exchanged almost $50mm of JPM’s July 2016 maturity on Thursday.
Non-Investment Grade –
Ford Motors (F) - Ford’s April 2015 maturity was most actively traded below the investment grade cut-off with $15mm of its 7% coupon changing hands. Fears for an economic downturn slammed its shares as investors feared a slide in the Philadelphia Fed’s gauge of economic activity signaled that recession was close at hand. Ford’s stock traded down 7% at $10.33 while those same fears sent its four-year maturity down by 36 cents per $1,000 investment forcing the yield higher as that on its treasury benchmark eased. In all Ford’s 2015 maturity saw its spread above treasuries add 17 basis points to sit 412 basis points above government debt on Thursday.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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