Midday Commentary: Investment-grade bonds open tighter; session 'all about Verizon'

By Cristal Cody

Tupelo, Miss., Sept. 11 - Verizon Communication Inc.'s record-breaking $49 billion eight-tranche offering of notes expected to price later in the day is not weighing on investment-grade bonds with credit spreads starting the Wednesday session slightly tighter, according to market sources.

"It's all about Verizon today," a trader said.

Verizon's bonds (Baa1/BBB+/A-) had widened more than 30 basis points since the company announced at the start of the month that it will purchase Vodafone Group plc's 45% stake in Verizon Wireless, but the issues were seen trading better on Wednesday, sources report.

Verizon's 2.45% notes due 2022 firmed to 155 bps bid, 150 bps offered early Wednesday from where the notes traded at 168 bps bid, 163 bps offered going out on Tuesday, according to traders.

The New York City-based telecommunications company sold $1.75 billion of the notes in November at a spread of Treasuries plus 75 bps.

Verizon's 3.85% bonds due 2042 traded about 5 bps better early Wednesday at 180 bps bid, 177 bps offered, a trader said. Verizon sold $1.25 billion of the bonds at a spread of Treasuries plus 97 bps in November.

"Verizon has been the only topic of discussion this A.M. and during this week it has moved the entire space wider," a trader at another desk said. "Today, anticipation has stalled any major movement in spreads. The first catalyst was the 10 a.m. ET allocations and the second is the noon pricing. Gray market activity is showing 20-30 bps tightening at the highs; however, [that] has leaked wider by a few."

The Markit CDX Series 20 North American Investment Grade index closed Tuesday 1 bp tighter at a spread of 78 bps.

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