High-grade activity slows; credit spreads widen; rate hikes eyed; Comcast, Duke soften

By Cristal Cody

Tupelo, Miss., Dec. 20 – The investment-grade bond market closed up Thursday with light activity and even less expected on Friday, sources report.

The investment-grade primary market is basically finished for the year with no bonds priced week to date, sources said.

The Markit CDX North American Investment Grade 31 index softened 4 basis points to a spread of 89 bps after ending the previous session also 4 bps wider. Spreads have widened about 9 bps week to date.

Little, if any, deal volume is expected for the remainder of the year, but new supply is in the works for January, a source said.

High-grade market strategists revised rate expectations in the year ahead following the Federal Reserve’s monetary policy rate hike and dovish statement on Wednesday.

Several sources said they now expect two rate hikes in 2019, down from initial forecasts of up to four or five hikes in the new year.

“We now expect the Fed to hike just two more times in 2019 with no additional hikes in 2020,” BofA Merrill Lynch strategists said in a report released on Thursday. “This would leave the terminal rate of the cycle to be 2.75 - 3.0% and shaves 50 [bps] off our previous path of the Fed. The market has already shifted and is not even pricing in a full hike in 2019 with cuts in 2020.”

The Federal Reserve is “too optimistic about the terminal rate but the market is too pessimistic,” the analysts said. “In addition, consistent with our forecast for fewer Fed hikes, we lower our U.S. interest rate forecasts across the curve, with the 10 [year] ending at 3%.”

In the secondary market, bonds were mixed during the session, a source said.

Comcast Corp.’s 4.7% notes due Oct. 15, 2048 eased about 4 bps to 5 bps after the issue headed out 2 bps weaker on Wednesday.

Duke Energy Carolinas, LLC’s 3.05% first and refunding mortgage bonds due March 15, 2023 priced earlier in the year widened 10 bps on the day.

Comcast weakens

Comcast’s 4.7% notes due Oct. 15, 2048 softened about 4 bps to 5 bps in secondary trading on Thursday to 159 bps bid, a market source said.

Comcast sold $4 billion of the 30-year notes (A3/A-/A-) on Oct. 12 at a spread of 150 bps over Treasuries.

The media and technology company is based in Philadelphia.

Duke Energy widens

Duke Energy Carolinas’ 3.05% bonds due March 15, 2023 traded 10 bps wider on Thursday at 81 bps bid, according to a market source.

The company sold $500 million of the bonds (Aa2/A) on Feb. 26, 2018 at a spread of Treasuries plus 47 bps.

The Charlotte, N.C.-based company generates, transmits, distributes and sells electricity and is a wholly owned subsidiary of Duke Energy Corp.

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