| 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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| 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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Bond Spreads Recover to Levels When Funds Froze: Credit Markets |
Bloomberg - April 23, 2010 - By Kate Haywood, John Detrixhe and Bryan Keogh
Bonds issued by non-financial companies are the most expensive they’ve been since the start of the credit crisis, as rising profits help offset concern that Europe’s fiscal crisis is worsening and the U.S. will adopt stricter regulations on Wall Street.
Chevron Corp. and Johnson & Johnson led a drop in U.S. industrial company debt yields to 130 basis points more than similar-maturity Treasuries this week, according to Bank of America Merrill Lynch index data. That matches the spread on Aug. 9, 2007, when BNP Paribas SA halted withdrawals from three investment funds at the start of the credit crisis.
Companies in the Standard & Poor’s 500 Index are posting first-quarter profits that exceed analyst estimates by a record 82 percent, according to data compiled by Bloomberg. That’s encouraging bond investors to buy corporate debt even as worries intensify that Greece is on the verge of default and a fraud suit against Goldman Sachs Group Inc. will spur more financial regulation.
“At a time when sovereign debt is seen as risky, corporate debt is a safe haven,” said Dagmar Kent Kershaw, head of credit fund management at Intermediate Capital Group Plc in London, which oversees about 10 billion euros ($13.3 billion) of assets. “There is a perception of risk and a desire for safer assets. When you couple that with a search for yield it leads investors to corporate debt.”
Record Spread
Industrial company bond spreads widened to a record 603 basis points, or 6.03 percentage points, on Dec. 10, 2008, before starting to shrink. The overall U.S. corporate bond market has returned 1.3 percent in April, heading for a fourth straight month of gains, Bank of America Merrill Lynch index data as of April 22 show. Treasuries have returned 0.4 percent, after losing 0.85 percent in March.
Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than government debt rose 1 basis point yesterday to 143 basis points, or 1.43 percentage point, down from a record 511 basis points in March 2009, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 3.92 percent.
Russia sold $5.5 billion of bonds in its first international debt sale since the 1998 default while Egypt returned to the dollar debt market after nine years to take advantage of a drop in borrowing costs.
Russia, Egypt
Russia priced $2 billion of five-year bonds to yield 3.741 percent, or 1.25 percentage points more than similar- maturity Treasuries, and $3.5 billion of 10-year notes to yield 5.082 percent, or a 1.35 percentage-point spread. The five-year yield is below the rate of 4.611 percent on bonds with the same credit ratings sold by European Union member Lithuania.
Egypt’s $1 billion of 10-year bonds were priced to yield 5.75 percent and $500 million of 30-year bonds at 6.95 percent, a banker involved in the transaction said.
Russia and Egypt are selling debt as the extra yield investors demand to hold emerging-market securities instead of Treasuries hovered near the lowest since December 2007, according to the JPMorgan Emerging Market Bond Index. The index, which reached as low as 230 basis points on April 15, rose 2 basis points to 244 basis points.
Bolivia plans its first international bond sale in more than 70 years as soon as the end of 2011, Finance Minister Luis Arce said. The World Bank plans to sell as much as 1.5 trillion pesos ($768 million) of bonds in its first offering in Colombia since 2004, said George Richardson, head of capital markets at the bank.
Emerging-Market Funds
Emerging-market bond funds took in $1.28 billion in the third week of April, a tally second only to the previous week’s record $1.8 billion of inflows, EPFR Global said.
Funds investing in local-currency debt continued to account for the biggest portion, the Massachusetts-based research company said in an e-mail. So far this year, funds focused on developing economies’ bonds have attracted $11.6 billion, more than the record annual total of $9.7 billion set in 2005.
The European Central Bank said today it will start asking banks pledging asset-backed bonds as collateral for financing for detailed information on the loans underlying the securities.
The Frankfurt-based central bank is trying to control the quality of bonds backed by other assets that it accepts as security for loans to financial institutions. By requiring more information on the notes, the ECB also said it may boost confidence in the debt blamed in part for worsening the credit crisis.
Phillips Loan
In the loan market, Phillips-Van Heusen Corp., the New York-based apparel company that owns the Calvin Klein brand, reduced the interest rate on a term loan and is selling junk-rated bonds to help finance its $3 billion acquisition of Tommy Hilfiger BV, said two people with knowledge of the transactions.
The company cut the proposed rate and the original issue discount on a $1.5 billion term loan, one of the people said. The company may sell $525 million of 10-year notes as soon as today to yield 7.375 percent to 7.625 percent, according to the second person. Both people declined to be identified because the terms are private.
Market Rally
The loan amendment comes amid a rally in the debt. The S&P/LSTA US Leveraged Loan 100 Index fell 0.1 cents yesterday to 92.64 cents on the dollar, the biggest decline since Feb. 12. The index gained 5.48 percent this year, extending its 52 percent rally from 2009.
Also in the loan market, lenders to Merck KGaA, the German drugmaker, finished syndicating a 1 billion-euro loan to pay for its acquisition of Millipore Corp. Twelve new banks joined the facility, which was underwritten by Bank of America Merrill Lynch, BNP Paribas SA and Commerzank AG, according to a statement from the lenders.
Greece led a decline in the cost of insuring against default on European sovereign debt after the country asked the European Union and International Monetary Fund to activate a 45 billion-euro aid package.
Credit-default swaps on Greek government bonds fell 50 basis points to 584, according to CMA DataVision. Swaps on Portugal dropped 17.5 basis points to 253, Spain declined 13.5 to 158 and Ireland was 4.5 lower at 170.
Payments Delayed
Goldman Sachs analysts said yesterday Greece is likely to cut or delay payments to bond investors. Moody’s Investors Service yesterday cut its rating on Greece one level to A3, citing the EU’s “fractious mobilization” of emergency aid.
The cost of protecting European corporate bonds from default fell. Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings dropped 1.5 basis point to 85.8, Markit Group Ltd. prices show. The index typically rises as investor confidence deteriorates and falls as it improves.
The Markit iTraxx Australia index rose 2 basis points to 84.5 basis points, while the Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan was little changed at 99 basis points, according to ANZ Banking Group Ltd. The Markit iTraxx Japan index declined 0.5 basis point to 95.5, according to Morgan Stanley.
North American Swaps
The Markit CDX North America Investment Grade Index Series 14 yesterday increased 1.2 basis points to a mid- price of 89.4 basis points yesterday in New York, according to Markit.
Credit 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.
“Investors haven’t lost their nerve and the choice to be overweight corporate debt is still strong as ever,” said James Lee, fixed-income analyst at Calvert Asset Management in Bethesda, Maryland, which has $7.6 billion of fixed income assets under management.
Chevron has benefitted from the rally in credit. Its $1.5 billion of 3.45 percent notes due 2012 were at 104.5 cents on the dollar on April 22, giving it a spread of 1 basis point, the tightest among companies in the Bank of America Merrill Lynch industrial index. The energy company is based in San Ramon, California.
Johnson & Johnson’s $600 million of 5.15 percent bonds due 2012 were at 108.76 cents to yield a spread of 4 basis points, index data show. The world’s biggest health- products company has its headquarters in New Brunswick, New Jersey.
While spreads may not narrow much further, it’s unlikely they will widen by much, according to Mirko Mikelic, a money manager at Fifth Third Asset Management in Grand Rapids, Michigan, where he helps oversee $14 billion of fixed-income assets.
“Overall the fundamentals are improving,” Mikelic said. “No one expects things to blow out by year end.”
--With assistance from Sonja Cheung and Caroline Hyde in London, Abigail Moses, Gabrielle Coppola, Fabiola Moura, Veronica Espinosa and Emre Peker in New York, Denis Maternovsky in Moscow, Ed Johnson in Sydney and Shelley Smith in Hong Kong. Editors: Robert Burgess, Charles W. Stevens, Cecile Gutscher, Michael Shanahan
To contact the reporters on this story: Kate Haywood in London at khaywood@bloomberg.net Bryan Keogh in London at bkeogh4@bloomberg.net John Detrixhe in New York at jdetrixhe1@bloomberg.net
To contact the editors responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net; Alan Goldstein at agoldstein5@bloomberg.net
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