Bond exodus at broad funds hits Pimco, JPMorgan

‘Overriding Factor’

“We’re in an environment where the likelihood is that interest rates are going to move higher and that hasn’t been the case for 30 years,” Gregory Kamford, a credit analyst at RBS in Stamford, Connecticut, said in a telephone interview.

Since the end of May, investors have removed $14 billion from U.S. intermediate-maturity corporate bond funds while putting $11.6 billion into funds focused on one-to-three year corporates and $12.9 billion into notes due in more than 10 years, RBS data show.  

“The only logic to follow at the moment is whether the central banks continue to supply the capital market with more liquidity,” Arthur Tetyevsky, a credit strategist at Imperial Capital LLC, said in a telephone interview. “That seems to be the overriding factor.”

Shell Bonds

Elsewhere in credit markets, the cost of protecting corporate bonds from default in the U.S. rose, with the Markit CDX North American Investment Grade Index, which investors use to hedge against losses or to speculate on creditworthiness, increasing 1 basis point to a mid-price of 72.5 basis points as of 10:47 a.m. in New York, according to prices compiled by Bloomberg.

The measure typically rises as investor confidence deteriorates and falls as it improves. 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.

Royal Dutch Shell Plc plans to sell dollar-denominated bonds in a four-part offering of notes due in five years or fewer after Europe’s biggest oil company borrowed $3.75 billion of longer-term debt three months ago. Its Shell International Finance unit intends to sell two portions of floating-rate bonds due in two and three years and fixed-coupon notes that mature in three and five years, according to a person with knowledge of the offering. That compares with an Aug. 7 transaction that included only fixed-rate debt with an average maturity of 15 years.

Bonds of Verizon Communications Inc. are the most actively traded dollar-denominated corporate securities by dealers today, accounting for 4.2% 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. The New York-based telephone carrier raised $49 billion on Sept. 11 in the largest corporate bond issue ever.

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