Morning Commentary: Zimmer short-dated notes tighten; Barclays flat; credit spreads stable

By Cristal Cody

Tupelo, Miss., March 12 – High-grade corporate bonds saw mixed trading early Thursday as market participants focused on the results of bank stress tests and a round of economic data reports, sources said.

Zimmer Holdings Inc.’s 2.7% notes due 2020 were quoted 4 basis points better in secondary trading.

Barclays plc’s 3.625% notes due 2025 brought on Monday traded flat.

Results of the Federal Reserve’s annual bank stress tests were released on Wednesday.

The U.S. divisions of Banco Santander, SA and Deutsche Bank AG failed the tests due to risk assessment deficiencies. Bank of America Corp. must resubmit its capital plan by the end of September or the bank’s planned share buybacks could be frozen.

“Immediately following yesterday’s release, all six of the U.S. majors announced increased payouts to shareholders, whether through an increased annual dividend or share buybacks,” RBC Capital Markets, LLC analysts said in a note. “While payouts to shareholders typically come at the expense of bondholders, the CDS market seems to be taking the announcements in stride, as the passing grades signify that bank capitalization has improved to a level where all banks could continue to lend through another financial crisis.”

The Markit CDX North American Investment Grade series 23 index was unchanged at a spread of 65 bps.

In other data, the Labor Department reported that initial unemployment claims fell 36,000 to 289,000 in the previous week, better than the 305,000 forecast.

Retail sales declined for a third straight month and slipped 0.6% in February, the Commerce Department reported. Economists expected a 0.3% increase for the month.

Zimmer five-year notes firm

Zimmer Holdings’ 2.7% notes due 2020 firmed to 106 bps offered, according to a market source.

The company priced $1.5 billion of the notes (Baa3/BBB) on Tuesday at a spread of Treasuries plus 110 bps.

Warsaw, Ind.-based Zimmer develops and markets orthopedic reconstructive spinal, trauma and other related surgical products.

Barclays paper unchanged

Barclays’ 3.625% notes due 2025 were unchanged at 150 bps offered, a market source said.

Barclays sold $3 billion of the notes (A3/BBB/A) on Monday at 150 bps over Treasuries.

The financial services company is based in London.

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