| 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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Bond Distress Highest Since ’09 as Sales Vanish: Credit Markets |
Bloomberg - May 27, 2010 - By Bryan Keogh and Kate Haywood
The percentage of corporate bonds considered in distress surged this week to the highest since 2009 as investors dumped debt of the neediest borrowers on concern Europe’s fiscal crisis will make it harder for them to refinance.
More than 17 percent of junk bonds yield at least 10 percentage points over Treasuries, up from 9.2 percent last month, Bank of America Merrill Lynch’s Global High-Yield Index shows. The jump is the biggest since the distress ratio rose 11 percentage points in November 2008, two months after Lehman Brothers Holdings Inc. collapsed. Bonds of MGM Mirage and Freescale Semiconductor Inc. joined the list this month.
U.S. distressed bonds have lost 10 percent in May, according to the indexes, as credit markets seize up amid speculation Greece and other nations in Europe with rising budget deficits won’t be able to meet their debt payments. Junk bond sales plunged this month to the lowest level since March 2009, data compiled by Bloomberg show.
“It’s going to be really difficult for some of these companies to address their debt piles,” said Mark Dewar, a London-based senior managing director at FTI Consulting who advised lenders to Lehman Brothers after the U.S. bank filed for bankruptcy. “It becomes a downward spiral.”
The 5.875 percent notes of Las Vegas casino operator MGM Mirage due in 2014 yield 11 percentage points more than Treasuries, becoming distressed on May 20 for the first time since December, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Freescale Spread
The spread on the 9.125 percent notes due in 2014 issued by Austin, Texas-based Freescale Semiconductor, the computer chipmaker bought in 2006 by private-equity firms led by Blackstone Group LP, is 11.7 percentage points. That’s up from 7.95 percentage points on April 26, Trace data show.
Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of similar-maturity government debt fell 1 basis point to 195 basis points, or 1.95 percentage point, the first time spreads have narrowed since May 13, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. The spread peaked at 511 on March 30, 2009, and dropped to as low as 142 on April 21. Average yields rose 4.5 basis points to 4.042 percent yesterday.
The difference between the two-year swap rate and the comparable-maturity Treasury note yield, known as the swap spread, declined for a third day, falling 3.5 basis points to 43.75 basis points. The spread has widened from 9.63 basis points on March 24, the narrowest since 1993.
Investor Confidence
Investor confidence was boosted in Europe after the Organization for Economic Cooperation and Development raised its global growth forecasts yesterday for this year and next and as China’s foreign exchange regulator said reports that it’s reviewing its euro holdings are “groundless.”
The Markit iTraxx Europe index of credit-default swaps on 125 companies with investment-grade ratings, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, dropped 3.3 basis points to 120 as of 12:12 p.m. in London, according to Markit Group Ltd.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan increased 4 basis points to 155.5 in Singapore, while the Markit iTraxx Japan index rose 2 basis points to 154 in Tokyo, according to prices from Royal Bank of Scotland Group Plc. and Morgan Stanley. The indexes typically rise as investor confidence deteriorates and decline 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.
Ontario Bonds
The Province of Ontario sold 132.6 billion yen ($1.47 billion) of five- and 10-year bonds yesterday that were priced to yield 25 basis points and 35 basis points more than mid-swaps respectively, the top end of a range it gave investors, according to a person familiar with the transaction.
The bonds’ spread is “attractive” compared to similarly- rated issuers, Katsuyuki Tokushima, a fixed-income analyst at NLI Research Institute, a unit of Nippon Mutual Life Insurance Co., said in a phone interview from Tokyo. For any issuer to generate demand of more than 100 billion yen in “such volatile market circumstances is a surprise,” he said.
Signs of Life
Signs of life retuned to Europe’s new issue bond market for the first time since the start of the region’s deficit crisis.
Deutsche Bank AG, Europe’s biggest investment bank, started offering investors at least 250 million euros ($307 million) of March 2013 floating-rate notes today, adding to its existing issue, according to three people with knowledge of the sale. The additional securities may be priced at 70 basis points to 75 basis points more than interbank rates.
Nestle SA, the world’s biggest foodmaker, plans to add at least $50 million to its outstanding 2.125 percent bonds due 2014, at a likely spread of 7 basis points less than swaps, a banker involved in the deal said today.
McDonald’s Corp., the world’s largest restaurant company, raised 250 million Swiss francs ($217 million) from its first sale in the currency in almost three years yesterday, according to data compiled by Bloomberg, as investors seek safer alternatives to weakened euro-denominated assets.
NEC Corp., Japan’s largest maker of personal computers, set coupons on 100 billion yen of three-, five- and seven-year bonds of 0.495 percent, 0.727 percent and 1.022 percent respectively, Bloomberg data show.
Malaysia Sale
Malaysia may price its first global Islamic bond in eight years today or tomorrow after receiving responses from Middle Eastern investors and as markets improved overnight, according to people familiar with the fundraising. Initial guidance suggested the benchmark-sized five-year sukuk note will be priced to yield about 200 basis points more than similar- maturity Treasuries, three people said, asking not to be identified. Benchmark sales are typically at least $500 million. A basis point is 0.01 percentage point.
Goldman Sachs Group Inc. sold $1.25 billion of 10-year, 6 percent senior bonds priced to yield 280 basis points more than similar-maturity Treasuries, according to Bloomberg data.
The New York-based bank sold $2 billion of 5.375 percent, 10-year notes on March 1 at a spread of 190 basis points, according to Bloomberg data. It issued an additional $750 million of the debt on March 19 at a 175 basis-point spread, Bloomberg data show.
Freddie Mac
Freddie Mac, the government-supported mortgage company, plans to sell notes due in 2012 in a benchmark offering, the firm said in an e-mailed statement. The debt may yield 30 basis points more than similar-maturity Treasuries, according to a person familiar with the offering who declined to be identified because terms aren’t set.
Spreads on so-called agency debt other than mortgage securities -- including corporate borrowing by Washington-based Fannie Mae and Freddie Mac, bonds from the Federal Home Loan Bank system, and U.S.-guaranteed bank notes -- widened to 31 basis points on May 25, according to Barclays Plc index data. That’s up from 24 basis points on March 31, when the Federal Reserve ended $171 billion of purchases of such debt.
In emerging markets, bond yield premiums over Treasuries declined 6 basis points to 340, according to JPMorgan Chase & Co.’s Emerging Market Bond index.
Losing Favor
The riskiest debt is losing favor with investors after returning about 70 percent from March 2009 through last month as credit markets and the economy recovered from the worst financial crisis since the 1930s.
Junk bonds globally have lost 4.4 percent in May, on pace for the first monthly decline in 15 months and the biggest drop since November 2008, Bank of America Merrill Lynch indexes show. Investors pulled more than $1 billion from high-yield funds during the third week of May, after redeeming $2.1 billion the previous period, according to EPFR Global, a Cambridge, Massachusetts, research firm that tracks fund flows.
Investors are unloading risky assets on concern European governments won’t be able to coordinate a response to surging levels of debt from Greece to the U.K. Spain became the focus of the crisis this week as four of its savings banks said they plan to combine to form the nation’s fifth-largest financial group, while the Washington-based International Monetary Fund said the country’s financial industry “remains under pressure.”
“Debt restructuring may be needed for one or two fiscally weak euro members,” Nobel Prize-winning economist Robert Mundell said yesterday at a conference in Warsaw.
Junk Spreads Widen
The yield spread on junk bonds has widened 7 basis points this week to 727 basis points after surging to 743 on May 25, the highest level since Dec. 9, Bank of America Merrill Lynch index data show. Spreads have widened 173 basis points since reaching a 30-month low of 554 on April 26. High-yield debt is rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.
“The market will hit massive roadblocks when companies have big principal payments coming due and they don’t have the money to repay them,” said Stefan Benedetti, a partner at Dusseldorf-based restructuring specialist Nikolaus & Co LLP. “If the bond market isn’t open, shareholders will have to hand back the keys to the banks.”
While spreads have widened, they remain below the record 21.9 percentage points reached on Dec. 15, 2008, when almost 90 percent of speculative-grade securities were considered distressed, Bank of America Merrill Lynch index data show.
‘Double-Dip Recession’
“We haven’t seen any company reports which suggests they’re on the verge of blowing up,” said Alex Moss, a fund manager at Insight Investment Management in London. “There are concerns that contagion from Europe will lead to a double-dip recession, but company fundamentals aren’t showing this.”
The market turmoil is curtailing companies’ efforts to borrow to help refinance $1.2 trillion of bonds and loans expected to come due through 2014, according to Bloomberg data. Speculative-grade companies have sold $7.55 billion of bonds globally this month, the least since March 2009, compared with $41.6 billion in April.
Saudi Basic Industries Corp., the world’s biggest petrochemicals maker, and Las Vegas-based Allegiant Travel Co. pulled bond deals this week, bringing the total to at least 21 borrowers that have postponed sales since April, Bloomberg data show.
“If financing markets stay closed for the next 12 months or longer, then there’s a problem,” said Andrew Wilmont, a London-based money manager with Axa Investment Managers U.K. Ltd. who helps oversee $5 billion of speculative-grade debt. “But right now, we’re talking about just a month’s worth of extreme volatility.”
Companies’ Struggle
Corporate borrowers will struggle to adjust to the “powerful regime change” as a long-term process of companies and countries cutting debt damps global growth, Stephen Moyer and Michael Watchorn, money managers at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s largest bond fund, wrote in a report May 25.
“We believe this distressed cycle will continue,” offering opportunities for investors to continue to pick up bargains, they wrote. “The end is not near.”
--With assistance from Abigail Moses in London, Shannon D. Harrington, Tim Catts, Jody Shenn and Craig Trudell in New York, Paulo Winterstein in Sao Paulo, Jungmin Hong in Seoul, Ed Johnson in Sydney, Katrina Nicholas and David Yong in Singapore and Takashi Ueno in Tokyo. Editors: Paul Armstrong, Charles W. Stevens
To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net; Kate Haywood in London at khaywood@bloomberg.net
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net
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