AT&T bonds active after DOJ blocks TMobile merger

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.

Click on link for updated table throughout the day at http://www.interactivebrokers.com/en/p.php?f=daily_analysis

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

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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