| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Corporate Bonds Beat Stocks Most Since February: Credit Markets |
Bloomberg - Jan. 29, 2010 - By Pierre Paulden and Caroline Salas
Corporate bonds are beating stocks by the biggest margin since February as investors seek the shelter of fixed income amid concern the global recovery is flagging.
While the MSCI World Index of stocks in 23 developed countries has lost 3.36 percent including reinvested dividends this month, the Bank of America Merrill Lynch Global Broad Market Corporate index gained 1.64 percentage points. Last month, stocks outperformed bonds by 2.4 percentage points.
Corporate borrowing costs fell this month as investors sought securities that offered some protection against a slowing economy and traders pushed back estimates for when central banks would increase interest rates. The extra yield investors demand to own company bonds instead of Treasuries has dropped to 165 basis points, or 1.65 percentage points, from 176 at the end of December, according to the Bank of America index.
“Some of the economic data has missed expectations, which has been disconcerting for the equity market,” said Eric Green, director of research at Penn Capital Management in Philadelphia, whose firm manages $4.5 billion. “It’s a short-term panicky mode that people are in.”
Elsewhere in credit markets, benchmark gauges of corporate credit risk in the U.S. and Europe reached seven-weeks highs yesterday, as Greece’s prime minister sought to quell speculation his country is seeking loans from other nations to trim its deficit. The rise suggests the rally in company bonds may falter. Corporate bond spreads were little changed today, according to Bank of America Merrill Lynch indexes.
Corporate Sales
Sales of corporate bonds globally totaled $269.2 billion this month, compared with $332.5 billion in the same period last year, according to data compiled by Bloomberg. Financial company commercial paper outstanding rose this week by the most since the Federal Reserve started its program to buy the debt during the credit crisis in October 2008.
Rating upgrades exceeded cuts in the fourth quarter for the first time since the second quarter of 2007 and are outpacing downgrades this month, according to Standard & Poor’s.
While credit measures are improving, company sales are growing slowly, said Arthur Tetyevsky, the chief fixed-income strategist at Broadpoint Gleacher Securities Inc. in New York.
“If you’re an equity investor, you’re looking at the income statements and if you’re a bond investor, you’re looking at balance sheets,” he said. “You could see why equity investors would be a little bit disappointed on these results but corporate bond guys should be more or less OK.”
Earnings Reports
Revenue growth hasn’t been fast enough to extend the Standard & Poor’s 500 Index’s 61 percent rally since March. While profits among the 188 companies that have reported quarterly results since Jan. 11 beat analysts’ estimates by 13 percent, sales have exceeded forecasts by 1.4 percent, according to data compiled by Bloomberg.
After gaining 3.4 percent through Jan. 14, the MSCI stock index has since fallen 6.6 percent. Corporate bonds were bolstered by a 1.3 percent return this month in Treasuries, according to Bank of America Merrill data. In February 2009, the difference between the returns in the global bond and stock indexes was 9.285 percentage points.
Investors remain skittish about the economy’s recovery with the U.S. unemployment rate at 10 percent. Greek bonds fell 4.19 percent in local currency terms this month, the biggest decline in the world. President Barack Obama asked Congress last week to limit the size of banks, curb proprietary trading and prohibit them from investing in hedge and private equity funds to prevent a repeat of the worst credit crisis since the Great Depression.
Betting on Fed
Traders see 82 percent odds that the Fed will leave its target rate unchanged at a range of zero to 0.25 percent through June, according to futures on the Chicago Board of Trade. A month ago, a majority was betting on an increase.
“There’s been the introduction of uncertainty in several different ways, including fears of sovereign risk and factors stemming from Washington,” said Stephen Antczak, managing director and the head of corporate strategy for Cantor Fitzgerald & Co. in New York. “Everyone was on the same side of the trade. Boom! Perfect setup for risk premiums to widen across the capital structure.”
While corporate bond spreads have narrowed, they are up from the low this month of 160 basis points on Jan. 14.
Bonds of real estate companies and insurers led the rally, with gains of 3.26 percent and 2.94 percent, while automaker and telecommunications company debt lagged behind at 0.88 percent and 1.15 percent.
Bank Bond Returns
Of the top 50 borrowers, debt issued by Paris-based Societe Generale, France’s second-largest bank, rose 3.48 percent and bonds of Edinburgh-based lender Royal Bank of Scotland Group Plc gained 3.24 percent, the month’s leading performers.
Financial bonds returned 1.82 percent, compared with 1.53 percent for debt sold by industrial companies, Bank of America index data show. Financials have outperformed industrials for all but one of the past seven months.
Blackstone Group LP Chief Executive Officer Stephen Schwarzman said yesterday that banks may start to rein in lending, putting the economic recovery at risk, if politicians keep attacking them and regulatory uncertainty persists.
“Financial institutions will feel under siege and they will retreat,” Schwarzman said in a Bloomberg Television interview at the World Economic Forum in Davos, Switzerland. “Their entire world is being shaken and they’re being attacked personally,” he said. “We don’t need those financial institutions insecure.”
Commercial Paper Surge
Issuance of financial commercial paper increased 10.5 percent to $601.2 billion for the week ended Jan. 27, the Fed said yesterday on its Web site. It was the biggest percentage jump since the period ended Oct. 29, 2008, when sales rose 12.4 percent, according to data compiled by Bloomberg.
Borrowing rose while the Fed steps back from some of its programs to provide liquidity and as borrowers seek new sources of lending, said Adolfo Laurenti, a deputy chief economist at Mesirow Financial Inc. The Federal Open Market Committee repeated this week that it would close four programs supporting money markets and bond dealers in February and will hold its final Term Auction Facility auction on March 8.
“I wouldn’t jump to a conclusion about the recovery of the commercial market yet,” Laurenti said in a telephone interview from Chicago. “It will come back when the economy gains steam.”
Overall borrowing in commercial paper rose $54.8 billion to $1.15 trillion in the week ended Jan. 27, a 5 percent increase and the biggest jump since the period ended Oct. 7 when it climbed 5.5 percent, Fed data show.
After Lehman
Companies use commercial paper to finance daily expenses such as payroll and rent. The market seized up in September 2008, when Lehman Brothers Holdings Inc. filed for bankruptcy. The Fed started buying 30-day dollar-denominated debt through its Commercial Paper Funding Facility on Oct. 27, 2008, and has said it will stop on Feb. 1.
A benchmark gauge of corporate credit risk in North America fell as a government report showed the U.S. economy grew 5.7 percent last quarter, the fastest pace in six years.
Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or hedge against losses, declined 1.5 basis point to 94.5 basis points as of 8:36 a.m. in New York, according to broker Phoenix Partners Group. The index, which has risen about 9 basis points in January and is headed for its first monthly increase since October, typically falls as investor confidence improves and rises as it erodes.
European Company Risk
In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 1.5 basis point to a mid- price of 81.25 basis points, JPMorgan Chase & Co. prices show.
Credit swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point is 0.01 percentage point and is equal to $1,000 a year on a contract protecting $10 million of debt.
Costs to protect against a default by Greece for five years fell back from yesterday’s record, dropping 25.5 basis points to 397, according to CMA DataVision. Swaps on the Markit iTraxx SovX Western Europe Index, which is linked to 15 governments including Greece, rose 3.5 basis points to a record 90.75 yesterday, CMA prices show.
Rising sovereign risk is spilling over into corporate credit markets as investors speculate on the impact a government funding crisis may have on companies, said Tim Backshall, chief strategist at Credit Derivatives Research in Walnut Creek, California.
“If investors are unnerved” by Greece, he said, “then systemic risk should rise across all risky assets.”
To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net; Caroline Salas in New York at csalas1@bloomberg.net
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