Bond buyers swoop on shorter-dated maturities

Government security prices made good headway with maturities from 10-30 years shedding seven basis points in yield even as stock prices rebounded from opening lows to trade higher on the day. Paper issued by financial institutions seemed to find decent demand with capital gains evident across all of the most widely traded names. The yield on the 10-year treasury benchmark slid to 2.17% ahead of lunchtime. Ahead of the release of August-minutes from the Federal Reserve later on Tuesday, fixed-income investors were scouring the market for buying opportunities at shorter-dated maturities.

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Investment Grade -

Wells Fargo (WFS) – Bonds maturing June 2016 issued by Wells Fargo with a face value of $28mm changed hands among investors on Tuesday. The five-year paper carries a yield to maturity of 2.55% and at its February issue carried a coupon of 3.676%. Shares in the company are unchanged at $25.41 and stand around 10% above the recently set 52-week low as financial issues find some favor among investors.

Barclays Bank (BACR) – Bonds issued by the British lender jumped on Tuesday to become the second most active issue among investment grade corporate bonds. Some $27mm of its bonds changed hands with investors apparently snapping up the Aa3-rated issue. As buying intensified the price advanced by almost $2.50 per $1,000 investment and forced the yield down to 4.40% on its September 2016 maturity.

BNP Paribas – (BNP) – Shares in the French lender advanced in the European session after it said that it had agreed with both auditors and authorities on provisions it had made on provisions on its Greek sovereign debt holdings. An earlier headline story that ran across the Financial Times indicated disgruntlement at Europe’s IASB accounting standards body. Its dollar denominated bonds were also well bid after the Wall Street Journal reported the bank’s attempt to diffuse the story. The yield on BNP’s March 2015 maturity slumped by 56 basis points to 3.60% narrowing the premium over comparable U.S. treasuries to around 267 basis points.

Non-Investment Grade –

ATP Oil & Gas Corp. (ATPG) Bonds maturing in four years issued by oil-producer ATP were the most actively traded non-investment grade issue on Tuesday. Its shares leapt last week after announcing that production had begun at its deep-water well in the Gulf of Mexico using its 4,000-foot deep Telemark Hub in its ATP Titan platform. Shares have now more than doubled since the broader market ran in to trouble over the past couple of weeks and currently trade at $13.79. Bonds issued by the company and rated Caa2 by Moody’s, traded on volume of above $10mm on Tuesday, although the 16.5% mid-yield remains much higher than the 11.875% coupon when the bonds made a debut in January. The 7,000 barrel per day output at the oil explorer has at least some investors believing that the risk of owning the bonds will pay off in the medium term. ATP’s bonds carry a maturity date of May 2015.

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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