High-grade issuers on sidelines as markets plunge; credit spreads move out; outflows continue

By Cristal Cody

Tupelo, Miss., March 12 – Investment-grade issuers stayed quiet on Thursday with the financial markets in turmoil.

High-grade credit spreads continued to move out, ending Thursday’s session about 21 basis points wider.

The Markit CDX North American Investment Grade 33 index closed the day at a spread of 136.7 bps.

Investment-grade credit spreads have widened more than 70 bps since March 2.

Corporate high-grade funds posted a second week of outflows, according to Lipper US Fund Flows on Thursday.

Outflows totaled $7.28 billion for the past week ended Wednesday, up from $4.79 billion of outflows in the previous week and inflows of $3.65 billion in the week prior.

This week’s outflow is the largest high-grade funds outflow with the previous largest outflow reported at $5.12 billion for the week ended Dec. 16, 2015, a market source said.

Deal volume totals more than $5 billion week to date.

Thursday’s session started on a frantic note with stock trading halted for 15 minutes after panic selling triggered a circuit breaker.

The freefall followed U.S. president Trump’s Oval Office address on Wednesday night that outlined some responses to the coronavirus outbreak, including limiting travel from certain countries in Europe for 30 days.

The World Health Organization designated the coronavirus as a pandemic on Wednesday.

“The financial markets were looking for ‘shock and awe’,” Confluence Investment Management LLC strategists said in a note on Thursday. “They wanted to see payroll tax holidays, grants to households, loans and lots of spending. They got a travel ban from Europe, a tax deadline delay and talk that something might be coming.”

New York declared a state of emergency on Thursday and will limit the number of people in gatherings.

The New York Federal Reserve announced that it will conduct repurchase agreement operations to help address the disruption in the Treasuries market due to the coronavirus, beginning with $500 billion in a three-month repo operation on Thursday and $500 billion in three-month and $500 billion in one-month repo operations on Friday.

Stock indexes ended the session down nearly 10% across the board.

The S&P 500 sank nearly 7% by mid-morning, finishing with a 9.51% decline.

The Dow Jones industrial average was down nearly 8%, or more than 1,800 points, early Thursday and closed the day off 9.99%, or 2,352.6 points.

Treasuries were mixed going out with the 10-year and 30-year benchmark notes losing some ground.

The 10-year benchmark note yield was down 12 bps at 0.703% early Thursday and closed the day up 2.9 bps at 0.849%.

Starbucks improves, Boeing softens

High-grade bonds remained mostly weak in the secondary market across all sectors on Thursday, including energy, telecommunications and financial names, sources said.

Starbucks Corp.’s senior notes (Baa1/BBB+/BBB+) priced on Tuesday were improved but traded softer than issuance over the day, a market source said.

The company’s 3.35% notes due March 12, 2050 traded as low as the 93 area during the session but were last seen at 97.79 going out, improved from where the notes traded on Wednesday with a 96 handle.

Starbucks sold $500 million of the 30-year notes at 99.232 to yield 3.391% and a spread of 225 bps over Treasuries.

Boeing Co.’s 2.95% senior notes due Feb. 1, 2030 (A3/A-/) slid further on the day to 92.06 from 93.37 at the start of the session and 93.64 on Wednesday.

The notes traded at 101.90 on Monday. On Friday, the notes traded with a 107.00 handle.

Boeing sold $750 million of the notes on July 29, 2019 at 99.88 to yield 2.96% and a spread of 90 bps over Treasuries.

Union Pacific Corp.’s 2.4% senior notes due Feb. 5, 2030 (Baa1/A-/) eased more than 20 bps and closed nearly 2 points lower at 97.83, a market source said.

The Omaha-based railroad transportation company sold $750 million of the 10-year notes on Jan. 28 at 99.611 to yield 2.444% and a Treasuries plus 80 bps spread.

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