US CORP BONDS-Spreads spike wider on Greek contagion fears
Reuters, 6 May 2010
U.S. corporate bond yield spreads spiked higher on Thursday as Treasuries surged and stocks tumbled on fresh concerns that Greece's debt problems will spread across Europe.
The cost to insure corporate debt against potential default shot higher, with the main index of investment-grade credit default swaps climbing to about 129 basis points from 105 basis points at Wednesday's close, according to Markit Intraday.
"People in our market are really starting to look at the European sovereign situation and are really getting concerned," said Richard Lee, head of fixed-income at broker-dealer Wall Street Access in New York.
Spreads were wider early in the session but spiked midafternoon along with sovereign spreads and CDS on peripheral European nations as panic spread across the financial markets.
The 30-year Treasury bond climbed more than 5 points at its peak, while the Nasdaq fell as much as 9 percent and the S&P 500 and Dow briefly fell into negative territory for the year.
"I'm not sure the magnitude of the price actions mean much; the volatility was based on market sentiment that felt like panic," said John Fenn, market analyst at Citigroup in New York.
Concerns about how far contagion will spread from Greece's fiscal woes has caused markets to weaken over the last week. Greek lawmakers on Thursday approved the government's 30 billion euro ($40 billion) austerity bill amid widespread protests across the country. Scenes of rioting were reported by some media outlets to have fueled Thursday's sell-off.
Lawrence Glazer, managing partner of Mayflower Advisors in Boston, said investors are wondering how the European debt crisis will impact risk appetite.
"Right now, the (corporate) bond market is telling us that there will be a contraction in that appetite," he said.
Bonds issued by General Electric Capital Corp, the finance arm of General Electric Co , widened sharply. Investors view the global conglomerate as a proxy for the overall market, said Glazer.
GECC's 5.9 percent bonds due in 2014 widened around 42 basis points from Wednesday to 107 basis points over comparable U.S. Treasuries, according to MarketAxess.
Bank spreads blew out, with Goldman Sachs Inc's 5.375 percent bonds due in 2020 widening about 48 basis points to 283 basis points over Treasuries, according to MarketAxess.
Bank of America's 7.625 percent bonds due in 2019 widened 25 basis points to 245 basis points over Treasuries and Morgan Stanley's 5.5 percent bonds due in 2020 widened 52 basis points to 317 basis points over Treasuries.