Trading hampered as buyers flee to crowded exits

Abbey National

“You can see the price swings being correlated to flows, with inflows and outflows showing up real time in performance,” said Jeff Meli, co-head of fixed-income, currencies and commodities research at Barclays Plc in New York. “The dealer community buffered against those swings at one point and they aren’t there anymore.”

Elsewhere in credit markets, Abbey National Treasury Services Plc sold $1 billion of notes in the largest offering of dollar-denominated debt in more than two years for the Banco Santander SA unit. The cost to protect corporate bonds in the U.S. from default fell from a six-week high. About $50 billion of collateralized loan obligations may be refinanced in the next two years, rewarding holders of the most speculative portions of the funds.

The U.S. two-year interest-rate swap spread, a measure of debt market stress, declined 0.5 basis point to 18.75 basis points. The gauge narrows when investors favor assets such as company bonds and widens when they seek the perceived safety of government securities.

JPMorgan Bonds

Bonds of JPMorgan Chase & Co. were the most actively traded dollar-denominated corporate securities by dealers yesterday, accounting for 2.6% of the volume of dealer trades of $1 million or more, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Abbey National’s 3.05%, five-year securities guaranteed by Santander U.K. priced to yield 155 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. Proceeds will fund general corporate purposes, according to a regulatory filing. The offering was the London-based lender’s biggest since it sold $2.5 billion of dollar-denominated bonds in April 2011.

The Markit CDX North American Investment Grade Index, which investors use to hedge against losses or to speculate on creditworthiness, fell 2 basis points to a mid-price of 82.2 basis points, according to prices compiled by Bloomberg. The measure finished Aug. 19 at the highest level since July 5.

European iTraxx

The Markit iTraxx Europe Index of credit-default swaps tied to the debt of 125 companies with investment-grade ratings increased 1.1 basis points to 103.6 at 10:47 a.m. in London. In the Asia-Pacific region, the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose 1.8 to 159.5.

The indexes typically fall as investor confidence improves and rise as it deteriorates. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index declined 0.09 cent to 97.77 cents on the dollar, the biggest drop since June 26. The measure, which tracks the 100 largest dollar-denominated first-lien leveraged loans, has returned 2.97% this year.

Leveraged loans and high-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at S&P.

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