Midday Commentary: Investment-grade bond spreads tighten in early trade; bank paper firms

By Cristal Cody

Tupelo, Miss., Nov. 18 - Investment-grade credit spreads firmed early Monday in front of an expected heavy new issue calendar for the last full week before the U.S. Thanksgiving Day holiday, market sources said.

"Bank paper is opening 2-3 [basis points] better, and things are starting to feel stronger than that," a trader said.

In the secondary market, bank paper continued to recover following the downgrade of four major U.S. banks on Thursday by Moody's Investors Service, sources said.

The Markit CDX North American Investment Grade series 21 index closed on Friday 2 bps tighter to a spread of 70 bps.

More than $25 billion of high-grade bond issuance is expected over the week, a market source said.

"Credit indices are opening tighter this morning and continue to test the tightest spread levels in the last six years as market participants disregard rumblings that credit valuations are overstretched and continue to invest in the market," RBC Capital Markets, LLC analysts said in a note on Monday.

"A catalyst that could impact the performance of spread product in the short-term is new issuance as a glut of primary deals has caused some participation fatigue in the corporate bond market."

BNY Mellon firms

Bank of New York Mellon Corp.'s 3.95% notes due 2025 (A1/AA-/AA-) tightened to 116 bps bid, 115 bps offered in the secondary market on Monday, a trader said.

BNY Mellon sold $400 million of the notes on Wednesday with a spread of Treasuries plus 125 bps.

The financial services company is based in New York City.

Goldman trades

Goldman Sachs Group Inc.'s 3.625% notes due 2023 (Baa1/A-/A) traded early Monday at 137 bps bid, 133 bps offered, according to a trader.

The notes were quoted on Friday afternoon at 136 bps bid, 133 bps offered after trading earlier in the day at 139 bps bid, 133 bps offered.

The New York City-based financial services company sold $2.25 billion of the notes in January at a spread of Treasuries plus 185 bps.

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