Midday Commentary: Investment-grade spreads firm; Southern, Abbey National notes tighten

By Cristal Cody

Tupelo, Miss., Aug. 22 - New investment-grade paper traded tighter in secondary trading early Thursday as spreads reversed some of the weakness generated on Wednesday following unease about the Federal Reserve tapering its stimulus program, market sources said.

Credit spreads firmed Thursday even as rates rose over the morning, one source said.

Spreads widened as much as 5 basis points on Wednesday after the minutes from the last Federal Open Market Committee meeting revealed few clues as to when the Federal Reserve will slow its $85 billion monthly asset purchases, sources said.

The Markit CDX Series 20 North American Investment Grade index ended Wednesday 2 bps wider at a spread of 84 bps.

"The Fed minutes continued to reiterate the point that the Fed will taper if the economic data supports recovery," a trader said. "The Street has interpreted that in many ways but it seems like the majority opinion is that tapering will begin before the year ends."

Light primary activity is expected until September, which could help high-grade bond spreads tighten further, a market source said.

Southern firms

In the secondary market, Southern Co.'s 2.45% senior notes due 2018 (Baa1/A-/A) sold on Wednesday firmed 1 bp in trading early Thursday, a trader said.

The notes tightened to 88 bps bid, 85 bps offered in the morning session from where they traded at 89 bps bid, 85 bps offered going out on Wednesday, the trader said.

The Atlanta-based utility company priced $500 million of the notes at a spread of Treasuries plus 93 bps.

Abbey tightens

Abbey National Treasury Services plc's 3.05% senior notes due 2018 remain active in the secondary market, tightening another 1 bp to 2 bps to 145 bps bid, 142 bps offered in trading early Thursday, a trader said.

The London-based financial services company sold $1 billion of the notes (A2/A/A) at a spread of Treasuries plus 155 bps on Tuesday.

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