Goldman takes double hit

IB Corporate Bond Brief: Goldman suffers double-blow

A dismal U.S. employment report sent government bond yields lower and had the same impact on equity prices. Bank names were hit hard. Bonds issued by European financial-names were once again on investors sell lists including those of London’s Lloyds Bank after a revival of fears for the sanity of the Eurozone, where surging Greek yields weighed on debt of larger nations. Compounding Wall Street’s woes was a government attempt to sue major banks over mortgage practices that helped spark the crisis three years ago.

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Goldman Sachs (GS) – The investment banker suffered from the double-troubles on Friday with its shares triggering an ugly “bear-flag” on the charts targeting its late-August lows. Goldman’s shares were 5.4% lower faring more than twice as badly as the loss inflicted across the S&P 500 index, which was lower by 2.1%. Equity markets had recently rallied even in the face of bad economic news on account of growing hopes that the Fed would step in with further measures to deal with slowing growth. But there was no masking the disappointment at the release of August employment data, which showed a net-nil job creation last month. The weaker environment for consumption weighed on earnings hopes crushing stock prices along the way. Government bond prices sending yields down, but news of potential losses for major bankers sent investors scurrying out of banks’ bonds. Most active were Goldman’s five-and-10-year maturities. Investors trashed Goldman’s recently-issued 10-year debentures, which carried an indicated mid-yield of 5.10% and some 12 basis points higher on Thursday’s close. With comparable government yields sliding by 11 basis points after the employment data, the spread to treasuries widened by 23 basis points as investors reassessed the riskiness of one of Wall Street’s biggest players.

Andrew Wilkinson

Senior Market Analyst

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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