US CORP BONDS-Spreads widen as stocks sell off
Reuters, 23 March 2010
U.S. corporate bond spreads widened on Tuesday as stocks fell and U.S. Treasury debt prices gained after disappointing economic data raised further doubts about the strength of the recovery.
Corporate bond yield spreads over comparable U.S. Treasuries widened by 1 basis point to 3 basis points overall, traders said.
The main index of investment-grade credit default swaps widened by about 4 basis points to around 94 basis points, according to data from Markit Intraday.
The CDS index took its cue from falling stocks, which fell after an industry group said consumer confidence fell in February and the monthly Standard & Poor's/Case-Shiller index of home prices unexpectedly slipped in December.
Trading volumes were light in the cash bond market, but demand for new debt sales showed little sign of weakness.
"It's real choppy, and will be for a while, but there's still enough cash on the sidelines that new deals can certainly get done at decent levels," said David James, vice president of fixed income at Wall Street Access in New York.
Diversified U.S. manufacturer United Technologies Corp sold a $2.25 billion two-part debt sale, according to IFR, a Thomson Reuters service.
United Tech sold a $1.25 billion 10-year tranche to yield 87 basis points over comparable U.S. Treasuries and a $1 billion 30-year tranche to yield 109 basis points over Treasuries, said IFR.
Also, National Australia Bank sold a $1.25 billion five-year deal and JPMorgan Chase , in a self-lead sale, sold a $1.1 billion three-year floating-rate offer, IFR said.
The new issue market "hasn't shut down by any stretch," said Spencer Lee, head of the trading desk at investment firm SCM Advisor LLC in San Francisco. "There's still cash that needs to be put to work."
Traders said that each deal was met with large demand as investors shrugged off the general uncertainty affecting markets globally.
The ongoing concern in recent weeks about Greece's ability to pay down its debt and the contagion effect it could have on other euro zone countries has prompted many investors to sell riskier assets, such as stocks and commodities.
Meanwhile, investors will watch closely on Wednesday when U.S. Federal Reserve Chairman Ben Bernanke testifies to the House Financial Services Committee as part of his semi-annual reports to Congress on the state of the economy.
The Fed on Thursday raised the rate at which banks can borrow from its overnight window to 0.75 percent from 0.50 percent, but talk of a near-term rise in U.S. interest rates stemming from that discount rate hike last week has cooled.