Thursday provided mixed sentiment for bonds. Equity markets were mixed keeping a lid on recent advances for corporate debt after a strong run that saw spreads to treasuries narrow sharply. Treasuries faced a good trading range with yields swinging five basis points higher before falling by six to yield 2.16% at the 10-year horizon. Dealers sold treasuries in response to a better than hoped for ISM manufacturing reading and although the index showed activity at the lowest since July 2009, the sector did not return to contraction. The index held above the dividing line at 50 by a slim amount. With non-farm payrolls due Friday expected to paint a picture of only tepid recovery, bond buyers stepped in to drive yields lower on the day.
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Investment Grade -
American Movil SAB (AMXLMM) – The leading Mexican provider of wireless services and its joint-ventures across South America means American Movil is Latin America’s largest wireless carrier. Earlier this week the company launched $2.75 billion in new bonds, while on Thursday its farthest-dated maturity appeared to find plenty of investor appetite. Buyers advanced Movil’s 6.125% March 2040 bond to narrow the premium over the U.S. long bond by one pip to 184 basis points as the yield on the U.S. 30-year slipped to 3.54%.
Walt Disney (DIS) – Disney bonds were actively traded at five and 10-year maturities even as the stock remain subdued. Volume across Disney’s 2016 and 2021 bonds each maturing in August rose to a combined $77mm in electronic trading. While yields eased in either case, Disney’s bonds like many others on Thursday were unable to keep up with a stronger treasury market causing yields to widen by a couple of basis points.
Non-Investment Grade –
Anadarko Petroleum Corp. (APC) For a second day Anadarko’s bonds were hot property in the speculative grade world with the top three spots occupied by its bonds carrying maturities between 2017 and 2040. Heaviest demand was seen at Anadarko’s September 2036 maturity where investors picked-up $19mm of its Ba1-rated paper forcing the yield lower to 5.90%.
Muni-bond corner – For the month of August municipal issues underperformed treasuries by the most in nine months as a weak economy stirs concerns about U.S. finances boosting investor appetite for safe haven treasuries. Munis returned 1.50% in August compared to 3.05% for Treasuries. Moody’s placed $11.6bn in outstanding California tax-allocation debt on review for downgrade due to the uncertainty over the future of the 400 redevelopment agencies. A new law may divert funds from these agencies, diminishing the quality of debt. The agencies provide tax incentives for development projects in struggling areas. Two new laws that divert money from California’s 400 redevelopment agencies and eliminate tracking of revenue used to repay their bonds may diminish the credit quality of the debt. Moody’s also said it expects municipal downgrades to outpace upgrades over the next year as state and local governments feel the effects of the recession. Most of the downgrades in 2011 have been housing related credits. Institutional interest has focused on new deals and has been priced rather tight to the AAA scale. Investors can pick up cheaper bonds in the secondary market. Midweek, Wells Fargo won a competitive deal for $248mm Florida State Board of Education (A1/AAA/A- ratings). In 2023, the bonds were price at 3.40% (+75 to AAA scale). Yesterday was the strongest day of the week as limited supply kept a bid in the market.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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