Midday Commentary: Market activity slows; trading thin; Verizon Communications paper tightens

By Cristal Cody

Tupelo, Miss., Dec. 20 - Activity slowed on Friday in the investment-grade bond market with thin trading seen early in the session and little action expected for the rest of the year, according to market sources.

"Today will represent the last normal day of the year," Confluence Investment Management strategists said in a note on Friday. "For the next two weeks, with Christmas and New Year's both falling midweek, trading activity will tend to be thin. This situation can lead to thin trading conditions and large market moves on little or no news."

The Markit CDX North American Investment Grade series 21 index closed 2 basis points tighter to a spread of 66 bps on Thursday.

Earlier in the week, financial paper tightened on average 5 bps to 7 bps following the Federal Reserve's announcement on Wednesday that in 2014 it will reduce its purchases of Treasuries and mortgage-backed securities by $10 billion per month to $75 billion, sources said.

"But perhaps more notable than Wednesday's one-day performance has been the performance of investment grade cash over the past seven trading days," Barclays analysts Jeffrey Meli and Bradley Rogoff said in a note on Friday. "During this period, the U.S. Investment Grade Corporate Index has tightened 6 bps, outperforming equities, high yield, and derivatives.

"For the fourth quarter to date, the index has tightened 23 bps and is now at the tightest level since July 2007."

In the secondary market, Verizon Communications Inc.'s 5.15% notes due 2023 are trading 10 bps better than at the start of the week, according to a market source.

Verizon firms

Verizon's 5.15% notes due 2023 (Baa1/BBB+/A-) were quoted early Friday at 132 bps bid compared to where they traded on Monday at 142 bps bid, 139 bps offered, a source said.

Verizon sold $11 billion of the 10-year notes with a spread of Treasuries plus 225 bps on Sept. 11 as part of the company's record $49 billion eight-part bond offering.

The telecommunications company is based in New York City.

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