Morning Commentary: Unilever wrapped around issuance; Capital One firms; Libor yield ticks up

By Cristal Cody

Eureka Springs, Ark., July 27 – Investment-grade bonds traded mostly flat to modestly better early Wednesday ahead of a notes offering from Verizon Communications Inc. and the outcome of the Federal Reserve’s policy meeting.

Unilever Capital Corp.’s 2% senior notes due 2026 that priced on Monday remain unchanged from issuance in the secondary market.

Capital One Financial Corp.’s 3.75% subordinated notes due 2026 brought to market on Monday traded 3 basis points tighter than issuance.

The three-month Libor yield rose 1 bp to 73 bps on Wednesday.

“There has been some curious behavior in the Libor markets recently,” Confluence Investment Management LLC strategists said in a note on Wednesday. “Although expectations of Fed tightening are benign, Libor rates have been ticking up.”

The rate has moved up about 10 bps over the past month, according to the note.

“Usually, such moves occur for one of the following reasons: (a) the Fed is raising rates or (b) there is a systematic financial system problem developing, leading investors to flee the Libor market for sovereigns,” the strategists said. “The rise in USD Libor hasn’t been matched by a similar rise in EUR Libor.”

The U.S. rise is “entirely due to regulation,” the strategists said. “On Oct. 14, prime money market funds will see their statutory maximum weighted average maturity fall from 90 to 60 days. In addition, institutional MMFs will be forced to institute a floating NAV and can put up ‘gates’ to slow withdrawals during crises.”

The Markit CDX North American Investment Grade index was stable at the start of the session at a spread of 74 bps.

On Tuesday, $16.84 billion of high-grade issues were traded, up from $14.69 billion on Monday, according to Trace.

Unilever flat

Unilever Capital’s 2% senior notes due 2026 that priced on Monday remain unchanged from issuance at 60 bps offered in the secondary market, a source said.

Unilever Capital sold $700 million of the notes (A1/A+/) on Monday at a spread of 60 bps over Treasuries.

The U.S. office of the Dutch and English consumer goods company is based in Englewood Cliffs, N.J.

Capital One improves

Capital One Financial’s 3.75% subordinated notes due 2026 were seen at 219 bps offered in secondary trading, according to a market source.

Capital One Financial priced $1.5 billion of the 10-year subordinated notes (Baa1/BBB-/A-) on Monday at a spread of 222 bps over Treasuries.

The financial services company is based in McLean, Va.

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