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CREDIT MARKETS: Corporate Credit Maintains Range
Dow Jones Newswires, March 4, 2010

Corporate credit markets maintained current ranges Thursday, as investors watched Greece's much-anticipated euro bond sale and awaited Friday's U.S. payrolls report.

"People are less inclined to jump in when we're close to an event that might move the market," said Richard Lee, managing director of fixed-income trading at broker-dealer Wall Street Access.

Investment-grade Corporates

The market saw about $3 billion in new high-grade bonds from Rabobank (RBK.YY), Baxter (BAX), Teco Energy (TE) and Johnson Controls (JCI).

Johnson Controls' $500 million bond deal was the manufacturer's first since 2006. The 5% 10-year bonds were sold at a risk premium of 145 basis points over Treasurys, lower than the earlier guidance, indicating good demand.

The "company's rebound in its bottom line, uptick in cash flow from operations and strong liquidity and leverage" make the bonds attractive, said Credit Derivatives Research analyst Byron Douglass.

Outside of the new deals, activity was muted. "People are taking a breather and are letting the uncertainty play out," said Wall Street Access' Rich Lee.

Recent deals have been "very spotty" in secondary trading, he said. Indeed, one of the most active high-grade issues, Time Warner Inc.'s (TWX) 4.875% 10-year note, was quoted at a risk premium of 130 basis points over Treasurys on MarketAxess, flat from pricing Wednesday.

The benchmark high-grade credit derivatives index, the Markit CDX IG13, was quoted slightly wider at 89 basis points.

Junk Bonds

The high-yield market maintained a firm tone Thursday, with cash bonds posting modest gains and the Markit CDX North America High Yield Index gaining 0.1 point to 98, according to Markit.

DirecTV notes were active and higher Thursday after Moody's Investors Service Wednesday upgraded DirecTV's senior unsecured ratings to an investment-grade Baa3 from a speculative-grade Ba2. DirecTV Holdings LLC's 7.625% notes due 2016 gained three-quarters of a point to 111.75, according to MarketAxess, and its 6.375% notes due 2015 are up 0.3 point to 103.8.

In the primary market, price talk for TW Telecom Holdings' (TWTC) $430 million offering of eight-year senior notes, noncallable for four years, via Credit Suisse is in the 8.25% area, according to KDP, with pricing expected later Thursday.

The default rate for U.S. speculative-grade companies fell to 12.7% in February from 13.6% in January and a peak of 14.5% in November, according to Moody's, which projects a drop to 3.3% by December.

On Wednesday, Standard & Poor's said its preliminary February default-rate estimate eased to 10.5% from 10.9% the prior two months.

Moody's said its speculative-grade corporate distress index, which measures the percentage of rated issuers that have debt trading at distressed levels, came in at 16.5% in February, unchanged from the revised level in January but sharply lower than the 49% reading one year ago.

Moody's also said the trailing 12-month U.S. leveraged loan default rate fell to 10.9% in February from 11.4% in January.


Risk premiums on agency debt tightened Thursday, according to TradeWeb. Fannie Mae's two-year note, sold last week at 20 basis points over Treasurys, was quoted wider at 22.2/20.3 basis points. Fannie said delinquencies in its mortgage portfolio continued rising in December as they did each month in 2009. Meanwhile, its mortgage portfolio fell 4.8% in January from a month earlier, putting the decline at a 45% annual rate. Fannie said serious delinquencies, or those at least 90 days behind, grew to 5.38% on single-family homes in December from 5.29% in November and 2.42% a year earlier.


The Federal Reserve Bank of New York has bought $10 billion in agency mortgage-backed securities. The bulk of the purchases, $6.3 billion, are Fannie Mae securities.

Asset-Backed Securities

Thursday was the final loan-application deadline for investors to procure low-cost loans from the Federal Reserve to buy newly created, high-quality consumer loan-backed deals.

The program, the Term Asset-Backed Securities Loan Facility, or TALF, has been a "success," said William Dudley, president of the New York Fed, in an interview with Dow Jones Newswires. "It provided leverage to investors to hold high-quality assets, and by doing that it got spreads on those assets down. It improved the flow of credit for a whole bunch of asset classes."

More than $100 billion in TALF-eligible deals have been sold since TALF started. Issuers have also sold several non-TALF deals, in a sign that investors are more confident about such securities.

On Thursday, Student Loan Corp.'s (STU) $690 million TALF-eligible bond priced, according to a term sheet. Student Loan Corp.'s deal was led by Citigroup and is one of about $7 billion worth of deals that emerged ahead of the TALF deadline.

The largest triple-A rated tranche worth $475.5 million sold at 350 basis points over the one-month London interbank offered rate.

Year-to-date issuance of consumer loan-backed deals stands at about $23 billion, of which $15 billion is auto-sector bonds, according to Citigroup.


Prices of long-dated Treasurys were higher Thursday afternoon, rebounding from early losses, as an unexpected decline in pending home sales dented economic sentiment and pushed investors to seek comfort in low-risk government debt. In recent trading, the price of the two-year note was down 3/32, yielding 0.859%, the 10-year note was up 3/32 to yield 3.61% and the 30-year bond was up 12/32 to yield 4.56%.


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