High-grade bonds mostly flat; credit spreads improve mildly; issuers stay away from market

By Aleesia Forni and Cristal Cody

Virginia Beach, Aug. 25 – Sentiment in the investment-grade bond market was somewhat improved on Tuesday following a brutal Monday session.

Markets rebounded after China’s central bank cut interest rates in an attempt to boost the stuttering economy.

Despite the better tone, issuers once again steered clear of the investment-grade primary bond market for the second consecutive session.

With the late-August lull underway, the remainder of the week will likely remain empty of new issuance ahead of September’s expected deluge of supply.

Players will also be focused on the happenings of the Federal Open Market Committee’s two-day policy meeting during the month ahead and the possibility of the long-awaited liftoff.

Investment-grade bonds headed out mostly unchanged while credit spreads improved over the day.

AT&T Inc.’s 3.4% notes due 2025 traded flat on Tuesday.

In other trading, bank and financial paper was mostly unchanged.

Citigroup Inc.’s 3.3% senior notes due 2025 were stable over the session.

JPMorgan Chase & Co.’s 3.125% notes due 2025 were flat in secondary trading.

Goldman Sachs Group Inc.’s 3.5% notes due 2025 headed out unchanged.

The Markit CDX North American Investment Grade index opened the session 4 bps tighter at a spread of 84 bps and by late afternoon was seen ending the session 1 bp tighter at a spread of 87 bps. The index widened 5 bps on Monday to a spread of 88 bps, its steepest one-day widening since July 2013.

“Since last Monday, CDX.IG has widened 12 [bps], almost double the move in investment grade cash,” Barclays Bank plc analysts said in a note on Tuesday afternoon. “We do not think this move is due purely to the more liquid nature of derivatives, as there are other key factors such as the lack of supply overhang in investment grade and substantially lower commodity credit risk than high yield cash.”

Spreads are unlikely to tighten unless the pace of supply slows, Barclays said.

“M&A-driven supply has accounted for most of the increase in issuance in IG this year and if the pickup in equity volatility leads to a decline in M&A activity, it could act as a positive catalyst for valuations,” the analysts said.

Bank/brokerage CDS costs drop

Investment-grade bank and brokerage CDS prices declined on Tuesday, according to a market source.

Bank of America Corp.’s CDS costs fell 4 bps to 78 bps bid, 82 bps offered. Citigroup’s CDS costs were 3 bps lower at 90 bps bid, 95 bps offered. JPMorgan Chase’s CDS costs were also 3 bps lower at 80 bps bid, 85 bps offered. Wells Fargo & Co.’s CDS costs decreased by 1 bp to 57 bps bid, 62 bps offered.

Merrill Lynch’s CDS costs were 4 bps lower at 81 bps bid, 85 bps offered. Morgan Stanley’s CDS costs ended 3 bps lower at 88 bps bid, 93 bps offered. Goldman Sachs Group’s CDS costs decreased 3 bps to 98 bps bid, 103 bps offered.

AT&T unchanged

AT&T’s 3.4% notes due 2025 were unchanged at 205 bps bid in secondary trading on Tuesday, a market source said.

The company sold $5 billion of the notes (/BBB+/A-) on April 23 at a spread of Treasuries plus 150 bps.

The telecommunications company is based in Dallas.

Citigroup weak

Citigroup’s 3.3% senior notes due 2025 were seen late afternoon flat at 168 bps bid, a market source said.

Citigroup sold $1.5 billion of the notes (Baa2/A-/A) on April 22 at Treasuries plus 135 bps.

The investment bank is based in New York.

JPMorgan flat

JPMorgan Chase’s 3.125% notes due 2025 were unchanged on Tuesday at 162 bps bid, according to a market source.

JPMorgan sold $2.5 billion of the notes (A3/A/A+) on Jan. 16, 2015 at a spread of Treasuries plus 145 bps.

The financial services company is based in New York City.

Goldman stable

Goldman Sachs’ 3.5% notes due 2025 headed out flat in secondary trading at 174 bps bid, a market source said.

Goldman sold $800 million of the notes (Baa1/A-/A) in a reopening on March 25 at Treasuries plus 145 bps.

The issue originally priced on Jan. 20, 2015 in a $1.7 billion offering at 170 bps over Treasuries.

The financial services company is based in New York City.

Paul Deckelman contributed to this review

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