Morning Commentary: High-grade bond spreads soft; Verizon widens; Morgan Stanley unchanged

By Cristal Cody

Tupelo, Miss., July 18 – Investment-grade bonds remained mostly softer early Friday after leaking wider on Thursday on reports of sanctions against Russia, a downed Malaysia Airlines plane and military action in Gaza, according to market sources.

The Markit CDX North American Investment Grade series 22 index eased 3.5 basis points on Thursday to a spread of 60 bps.

The investment-grade market, though, is “absorbing the sell-off well so far [with the] pain mostly limited to [the] CDS market,” RBC Capital Markets, LLC analysts said in a note. “Despite a move wider in CDS spreads in the last couple sessions, spreads on most cash bonds have only softened a small amount.”

In the secondary market, Verizon Communications Inc.’s bonds (Baa1/BBB+/A-) continued to be active but weaker, a source said.

Morgan Stanley’s 2.375% senior notes due 2019 brought on Thursday were unchanged in early trading, a source said.

Verizon widens

Verizon’s 6.55% bonds due 2043 traded 4 bps to 5 bps wider early Friday at 164 bps offered, a market source said.

The notes were quoted in the 160 bps area late Thursday afternoon and traded at 156 bps offered on Wednesday.

The bonds opened Friday’s session at 125.43 to yield 4.901% from where the issue closed at 125.54 to yield 4.895% on Thursday, according to a market source.

Verizon sold $15 billion of the bonds at Treasuries plus 265 bps, or 99.883 to yield 6.559%, on Sept. 11.

The telecommunications company is based in New York City.

Morgan Stanley flat

Morgan Stanley’s 2.375% notes due 2019 (Baa2/A-/A) traded unchanged at 86 bps bid, a source said.

The notes headed out on Thursday at 86 bps bid, 83 bps offered in aftermarket trading.

Morgan Stanley sold $2.5 billion of the notes at Treasuries plus 85 bps in Thursday’s session.

The financial services company is based in New York City.

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