| 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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Junk Bonds Show Ebbing Distress on Record Sales: Credit Markets |
By Caroline Salas and Pierre Paulden
Feb. 9 (Bloomberg) -- Investors in the lowest rated corporate bonds are looking past concern that worsening government finances will derail the economy, paying prices that imply the fastest drop in defaults in more than a decade.
The amount of so-called distressed securities, or bonds yielding at least 10 percentage points above benchmark rates, fell to $117 billion from $250 billion six months ago, according to Bank of America Merrill Lynch index data. The market is pricing in a default rate of 0.3 percent in a year, down from 10.2 percent in December, JPMorgan Chase & Co. says.
The neediest borrowers are raising record amounts of debt, allowing them to refinance obligations even as relative borrowing costs rise on concern that European governments will struggle to close budget deficits. Speculative-grade companies have issued $21.6 billion in 2010, the fastest start to a year on record, after selling an unprecedented $162 billion in 2009, according to data compiled by Bloomberg.
“Recent trends in asset prices will not change the trend in the default rate,” said Peter Acciavatti, head of U.S. high yield and leveraged loan credit strategy at JPMorgan. “Our view is default rates will continue to fall due to the improvement in capital markets over the last year, even as markets have become a little choppy of late. We still like the asset class.”
Acciavatti, the top-ranked high-yield strategist in Institutional Investor magazine’s annual poll for the past seven years, cut his forecast for junk-bond defaults to 2 percent by year-end from 4 percent.
Extra Spread
The extra yield investors demand to own corporate bonds overall instead of similar-maturity Treasuries widened to 170 basis points yesterday from 169 on Feb. 5, Bank of America Merrill Lynch’s Global Broad Market Corporate Index showed.
The spread on U.S. high-yield bonds grew to 685 basis points from this year’s low of 599 basis points, or 5.99 percentage points, on Jan. 11, according to the Bank of America Merrill Lynch U.S. High-Yield Master II Index.
Elsewhere in credit markets, the proportion of securitized U.S. prime jumbo mortgages at least 60 days delinquent rose for a 32nd straight month and Las Vegas-based casino operator MGM Mirage says it’s seeking to push out the maturities on a “substantial portion” of its bank debt. The cost to insure bonds sold by Portugal, Greece and Spain fell back from yesterday’s record highs as speculation mounted that the European Union will come to Greece’s aid in tackling its budget deficit.
‘Tightening to Come’
Wider high-yield spreads make junk bonds even more attractive than they were at the start of the year because defaults will decline in 2010, according to Martin Fridson, chief executive officer of money-management firm Fridson Investment Advisors in New York. Junk bonds are rated below Baa3 by Moody’s Investors Service and less than BBB- by Standard & Poor’s.
“There’s much more tightening to come,” said Fridson, who predicts spreads may narrow to 532 basis points in a year. “The case is getting stronger for a solid double-digit return this year.”
Junk bonds have returned 0.61 percent this year, after gaining a record 57.5 percent in 2009, according to Merrill Lynch index data. The securities are underperforming investment- grade bonds, which have handed investors 1.8 percent in 2010, the index data show.
The number of issuers with bonds trading at distressed levels has shrunk to 169 from a high of 761 in December 2008, according to data compiled by Bloomberg. The spread on speculative-grade securities has narrowed from a record 21.8 percentage points in December 2008, making it more affordable for companies to refinance their debt.
McClatchy Sells
McClatchy Co., publisher of the Miami Herald and the Sacramento Bee newspapers, sold $875 million of senior secured notes due 2017 this month to refinance bank loans. Fitch Ratings increased Sacramento, California-based McClatchy’s credit ranking two levels to CCC from C because the offering postponed the risk of the company being unable to refinance debt until 2013.
“While companies are paying more than a few weeks ago to borrow, the ability to refinance debt is open,” said Eric Takaha, director of corporate and high-yield for the Franklin Templeton Fixed Income Group, which manages more than $213 billion. “Trends are still positive for this year. Absent any major change, defaults will come down,” Takaha said in a telephone interview from his San Mateo, California office.
Freescale Offerings
Freescale Semiconductor Inc. is marketing $750 million of 10-year notes this week to repay bank debt. The Austin, Texas- based chipmaker was taken private in 2006 and is rated Caa1 by Moody’s and B- by S&P. Freescale has more than $7 billion of debt maturing through 2014, according to Bloomberg data.
“It is justified that the number of issues trading as if they’re going to default within a year has come down sharply because with the refinancing that happened on such a large scale in 2009, companies have pushed out their crisis point to 2012 and beyond,” Fridson said.
Credit-default swaps on Portugal fell 7 basis points to 237.5, after climbing to a record yesterday, while contracts on Greece dropped to 409.5, from yesterday’s all-time high of 426, according to CMA DataVision. Spain fell to 167.5 basis points, down from a record 173.5 yesterday, CMA prices show.
Credit-swaps on the nations surged yesterday on concern they will struggle to cut budget deficits, pushing the Markit iTraxx SovX Western Europe Index of contracts on the debt of 15 governments to an all-time high of 112.75 basis points yesterday, according to CMA.
Deficit Concern
Concern that governments within the euro region may struggle to meet their debt commitments has hurt confidence in the region’s banks. Credit-default swaps on Banco Comercial Portugues SA, Portugal’s second-largest bank, jumped 7.5 basis points to 255, an all-time high, and contracts on Banco Santander SA were at 147, 1 basis point lower than yesterday’s highest level since April, CMA prices show.
Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings fell 3 basis points to 494 today, near a two-month high, according to JPMorgan.
Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 13 rose to the highest in three months yesterday amid investor concern that “contagion” from risks posed by rising deficits in Europe to government debt may spread to other assets.
The index, linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, climbed 5.25 basis points to a mid-price of 107 basis points, according to broker Phoenix Partners Group. The index is at its highest since reaching 107.02 basis points on Nov. 3, according to CMA prices. The gauge typically rises as investor confidence deteriorates.
‘Like a Contagion’
“This is looking more and more like a contagion that can only be stopped via outside intervention,” Guy Lebas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC in Philadelphia, wrote in an e-mail.
U.S. prime jumbo mortgages at least 60 days late backing securities reached 9.6 percent in January from 9.2 percent in December, the 32nd straight increase for “serious delinquencies,” Fitch said yesterday.
“The trend line for delinquencies indicates the 10 percent level could be reached as early as next month,” Vincent Barberio, a Fitch managing director in New York, said in a statement. The rate almost tripled in 2009, Fitch said.
In Europe, the Co-operative Bank Plc, a unit of the U.K.’s largest customer-owned retailer, plans to issue as much as 2.5 billion pounds ($3.9 billion) of mortgage-backed securities, according to a banker with knowledge of the deal.
Europe CMBS
Ratings of European commercial mortgage-backed securities will remain “under pressure” as the credit quality of the loans in the deals deteriorates, according to Moody’s.
The New York-based ratings company downgraded 216 portions of commercial mortgage-backed bonds, or 63 percent of the securities that it rates, between October 2008 and December 2009, according to the report. Only three pieces were revised higher in the period.
MGM Mirage, the Las Vegas Strip’s largest casino owner, proposed pushing out maturities on $5.55 billion of senior credit facilities. About half of its $12.9 billion in long-term debt comes due through next year, according to filings with the U.S. Securities and Exchange Commission. The casino operator is also working to cut borrowings to $10 billion after losing money in three of the past four quarters.
“This extension will provide the company with ample time that will be needed to navigate through challenging business conditions in Las Vegas, while management works to improve Ebitda,” Deutsche Bank AG analysts Andrew Zarnett and Sri Rajagopalan said in a report yesterday, referring to earnings before interest, taxes, depreciation and amortization.
NewPage Tumbles
NewPage Corp. bonds continued to tumble amid weakening demand for coated paper.
The Miamisburg, Ohio-based company’s five-year, senior secured 11.375 percent notes dropped 4.875 cents on the dollar to 90.625 cents to yield 14.04 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bonds of NewPage, which is owned by New York- based Cerberus Capital Management LP, traded at 98.25 cents as recently as Feb. 2.
“The coated paper market had been showing some pickup in demand in recent months, and that seems to be fading,” said Brian Bogart, analyst at KDP Investment Advisors in Montpelier, Vermont.
--Editors: Michael Weiss, Ed Johnson
To contact the reporters on this story: Pierre Paulden in New York at +1-212-617-3759 or ppaulden@bloomberg.net; Caroline Salas in New York at +1-212-617-2314 or csalas1@bloomberg.net
To contact the editor responsible for this story: Alan Goldstein at +1-212-617-6186 or agoldstein5@bloomberg.net
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