Equity investors were in buoyant mood Wednesday. The Fed’s August meeting minutes made the chance of another wave of easing in some form more likely. A tepid employment reading basically iced the cake, while more optimistic data helped the benchmark indices stride forth. Corporate bonds flourished on the news with the risk-on mode providing bulls to step-up their purchases across fixed income and equities. While government yields rose, many corporate yields fell causing a narrowing of premiums in many cases.
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Investment Grade -
AT&T Inc. (T) – The DOJ’s blocking of the AT&T – TMobile USA merger was seized upon by institutional buyers looking to hop aboard its furthest-dated maturity. AT&T’s 5.55% bond maturing August 2041 saw heaviest volume amongst all investment grade issues with $75mm changing hands by New York lunchtime. The $39 billion cost to acquire TMobile suddenly disappeared – for now at least – and with surging demand for its A2-rated issue, investors forced down the yield on the issue by four basis points to 5.14%. At the same time positive economic data coming from the U.S. caused the yield on similar government maturities to rise by almost as much. The spread between the two narrowed by around seven basis points during the day.
Non-Investment Grade –
Anadarko Petroleum Corp. (APC) There was plenty of action in bonds issued by oil-explorer Anadarko midweek with its share price also advancing to its best since August 4. Anadarko’s longest-dated maturities occupied the top-two spots in our most-active table for speculative grade bonds with volume approaching $50mm. And while that was the thick end of the wedge, investors also purchased four more of its bonds maturing between 2017-19.
Muni-bond corner – Thirty-day total visible supply is at $4.7bn down from this year’s average of $7.6bn in thin pre-holiday trading with a mere $1.3bn in new issuance this week. States and municipalities have borrowed $144bn in long-term debt year-to-date, which is $107bn less than last year. New issuance is not expected to pick up until the economy improves as states try to balance budgets with shrinking revenue. The 10-year AAA yield has hovered around 2.26%, which is at 104% of 10-year treasuries having falling below 100% last week.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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