| 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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Swaps Show European Contagion Won’t Hit U.S.: Credit Markets |
By Shannon D. Harrington and Abigail Moses
Feb. 24 (Bloomberg) -- The risk that a government funding crisis in Europe will spread across the Atlantic Ocean is declining, bolstering corporate bond markets in the U.S., credit-default swaps show.
Since Feb. 10, the day before European Union President Herman Van Rompuy pledged to safeguard financial stability in the euro region, the cost to protect company debt in America from default has dropped 7.3 percent, while it fell 2.1 percent in Europe. In the five weeks before the statement, prices moved almost in lockstep, with swaps climbing 34 percent in the U.S. and 35 percent in Europe, according to CMA DataVision.
The decoupling in credit risk suggests investors are betting Europe’s leaders won’t let Greece’s budget deficit, the area’s biggest in terms of gross domestic product, drag down the EU’s economy, hurting the rest of the world. Swap prices as measured by the Markit CDX North America Investment Grade Index have fallen to within the closest of the Markit iTraxx Europe index since 2006.
European leaders’ pledge to take “determined and coordinated action” to stem Greece’s funding deficit this month “did lessen the risk of contagion on this side of the ocean,” said Mikhail Foux, a New York-based credit strategist at Citigroup Inc. “On the other side of the ocean, there’s still a lot of problems,” he said.
The Markit iTraxx SovX Western Europe index linked to 15 governments has almost doubled since it began trading in September, jumping almost 42 basis points since Sept. 29 to 92.6 basis points yesterday, CMA prices show.
Yields Tumble
Elsewhere in credit markets, the extra yield investors demand to own company bonds instead of government debt held at 168 basis points, or 1.68 percentage points, yesterday, the narrowest since Feb. 4, according to Bank of America Merrill Lynch’s Global Broad Market Corporate index.
Yields overall tumbled to 4.09 percent, the lowest since Feb. 8, from 4.16 percent. The drop tracked a decline in government bond yields following reports that U.S. consumer confidence tumbled in February and German business confidence dropped last month for the first time since March.
The rally in bond prices trimmed the month-to-date loss to 0.12 percent, from 0.55 percent, including accrued interest, the Merrill Lynch index shows. Year-to-date, investors have earned an average of 1.71 percent, compared with 0.87 percent in government debt and a loss of 3.74 percent for the MSCI World Index of stocks.
Bond Sales
United Technologies Corp., the maker of Pratt & Whitney jet engines and Otis elevators, took advantage of the drop in yields to sell $2.25 billion of senior unsecured bonds in the biggest offering of U.S. investment-grade debt in almost three weeks, according to data compiled by Bloomberg.
General Electric Capital Corp. bonds fell to a one-month low after the company offered its first euro-denominated notes since September.
MetLife Inc. is asking banks to submit commitments for a $5 billion bridge loan, said a person familiar with the negotiations who declined to be identified because the talks are private. The New York-based insurer’s request to banks indicates that its delayed plan to acquire an American International Group Inc. unit may be imminent, said Robert Haines, senior insurance analyst at credit research firm CreditSights Inc. in New York.
The S&P/LSTA U.S. Leveraged Loan 100 Index, containing the most actively traded high-yield loans, gained for a fifth day, rising to 89.05.
FDIC, Greece
The Federal Deposit Insurance Corp. may start selling bonds tied to the assets of failed banks as soon as next month, said people familiar with the talks who declined to be identified because they aren’t public.
In Europe, credit-default swaps on three of the largest Greek banks jumped after the lenders were downgraded by Fitch Ratings yesterday. National Bank of Greece SA, Alpha Bank AE, EFG Eurobank Ergasias SA were cut one step to BBB, the second- lowest investment-grade ranking.
Swaps on National Bank of Greece rose to 437.5 basis points, from 398 on Feb. 22, according to CMA prices. Alpha Bank increased 39 basis points to 446 over the two-day period, while EFG surged 42 basis points to 442. Contracts on Greek government debt gained 7.5 basis points today to 370, the highest in two weeks.
“The banks’ already weakening asset quality and profitability will come under further pressure due to anticipated considerable fiscal adjustments,” Fitch said in the statement. “The required fiscal tightening that needs to be made by the Greek government will have a significant effect on the real economy, affecting loan demand and putting additional pressure on asset quality.”
‘Less Contagion’
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to meet its debt agreements. An increase signals declining perceptions of credit quality. A basis point on a credit-default swap protecting $10 million of debt from default for five years equals $1,000 a year.
Greece’s stocks and bonds began tumbling in October amid concern that its creditworthiness was deteriorating. Standard & Poor’s, Moody’s Investors Service and Fitch downgraded the country’s credit in December as its deficit approached 13 percent of GDP. The euro region’s economy will likely expand 1.2 percent this year, compared with 2 percent in the U.S, according to the median estimate of economists surveyed by Bloomberg.
Bigger Drop
The bigger drop in the Markit CDX North America index in recent weeks “suggests that the market interprets the promised European intervention to mean less global contagion outside sovereigns and banks,” Bank of America Corp. strategists Teo Lasarte, Barnaby Martin and Hans Mikkelsen wrote in a Feb. 19 report.
The North America index has exceeded its European counterpart since at least 2005, when CMA started tracking the data. The gap narrowed to as little as 5 basis points on Feb. 18 from a peak of 94 in November 2008. The difference is 8.25 basis points today.
The United Technologies offering was split between $1.25 billion of 4.5 percent, 10-year notes that yield 87 basis points more than similar-maturity Treasuries and $1 billion of 5.7 percent, 30-year notes at a spread of 109 basis points. The Hartford, Connecticut-based company will use the proceeds to pay for its purchase of General Electric Co.’s security unit, according to a Securities and Exchange Commission filing.
Most Since Buffett
The sale was the biggest U.S. investment-grade offering since Kraft Foods Inc. raised $9.5 billion and Warren Buffett’s Berkshire Hathaway Inc. issued $8 billion of bonds on Feb. 4, Bloomberg data show.
GE Capital Euro Funding’s 4.125 percent notes due in October 2016 fell 0.39 cent yesterday to a one-month mid-price low of 102.2 cents on the euro, according to HSBC Holdings Plc prices on Bloomberg. The notes yielded 3.73 percent.
The finance unit of Fairfield, Connecticut-based GE sold 1.5 billion euros ($2 billion) of 4.25 percent, seven-year notes that priced to yield 4.32 percent, or 140 basis points more than the benchmark mid-swap rate, Bloomberg data show.
New York-based MetLife, the biggest U.S. life insurer, asked lenders to confirm their funding by as soon as this evening, said the person, who declined to be identified because the terms are private. Bank of America, JPMorgan, Deutsche Bank AG, Credit Suisse Group AG and HSBC Holdings Plc are arranging the financing, the person said.
American Life Bid
The loan would help pay for MetLife’s $15 billion purchase of AIG’s American Life Insurance Co., people with knowledge of the matter said earlier this month. Negotiations had been delayed this month over the tax liability on sales of products to foreign customers.
Spokesmen for MetLife, AIG, HSBC and Credit Suisse declined to comment, while those for Bank of America, Deutsche Bank and JPMorgan couldn’t immediately comment on the deal.
Initial offerings of debt from failed banks may include about $2 billion of the FDIC’s remaining stakes in loans from Corus Bank and Franklin Bank, said the people familiar with the talks. The debt would be guaranteed by the agency.
The FDIC holds about $40 billion of assets from seized banks and expects to gather more as institutions collapse after the worst U.S. recession and real-estate slump since the Great Depression, said Jim Wigand, an agency official. For the FDIC, bond sales could provide an additional way to raise cash, reviving methods used during the early 1990s, he said.
“We’re going back and looking at the tools we used in the last crisis and thinking about how we would deploy them this time around,” Wigand, the deputy director of FDIC’s division of resolutions and receiverships, said in a telephone interview.
--With assistance from John Glover and Bryan Keogh in London and Emre Peker, Jody Shenn, Anna-Louise Jackson and Hugh Son in New York and Rachel Layne in Boston. Editors: Alan Goldstein, Tom Kohn
To contact the reporters on this story: Shannon D. Harrington in New York at +1-212-617-8558 or sharrington6@bloomberg.net; To contact the reporter on this story: Abigail Moses in London at +44-20-7673-2118 or Amoses5@bloomberg.net
To contact the editors responsible for this story: Alan Goldstein at +1-212-617-6186 or agoldstein5@bloomberg.net; Paul Armstrong at +44-20-7330-7185 or Parmstrong10@bloomberg.net
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