Morning Commentary: Spreads near seven-year lows; Bank of America firms; AT&T long bonds slip

By Cristal Cody

Tupelo, Miss., June 20 – Investment-grade credit spreads remained tight early Friday and near seven-year lows, according to a market source.

The Markit CDX North American Investment Grade series 22 index closed on Thursday 1 basis tighter at a spread of 56 bps.

“In the aftermath of Wednesday’s FOMC meeting, bond investors continue to gravitate toward corporate bonds because of a perception that continued accommodative monetary policy is supportive of a continued compression in corporate spreads,” RBC Capital Markets, LLC analysts said in a note on Friday.

“Spreads may compress a bit more if the trend continues, but there is limited capacity for tightening from current levels so the reward for trying to squeeze the last couple basis [points] from the corporate bond market is pretty minimal at this point,” the analysts said.

Bank and financial paper traded mostly better early Friday, market sources said.

Bank of America Corp.’s 4% notes due 2024 firmed about 1 bp in the secondary market.

In other trading, AT&T Inc.’s 4.8% notes due 2044 dropped more than 2 points from Thursday.

Bank of America firms

Bank of America’s 4% notes due 2024 (Baa2/A-/A) firmed about 1 bp to 114 bps offered on Friday, according to a market source.

The 10-year notes edged up a penny to 101.87 in midday trading, a source said.

Bank of America sold $2.75 billion of the notes on March 27 at 137 bps over Treasuries, or 99.625 to yield 4.065%.

The financial services company is based in Charlotte, N.C.

AT&T notes trade

AT&T’s 4.8% notes due 2044 (A3/A-/A) were quoted tighter from issuance at 119 bps offered early Friday, a source said.

The notes dropped to 99.78 in midday trading from 102.34 on Thursday, according to a market source.

AT&T sold $2 billion of the 30-year notes at Treasuries plus 140 bps, or 99.636 to yield 4.823%, on June 3.

The telecommunications company is based in Dallas.

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