Morning Commentary: High-grade issuers on sidelines as markets plunge; bonds soften

By Cristal Cody

Tupelo, Miss., March 12 – Investment-grade issuers stayed quiet Thursday morning as pandemonium broke out in the financial markets with stock trading halted for 15 minutes after panic selling triggered a circuit breaker.

The freefall followed U.S. president Donald Trump’s Oval Office address on Wednesday night in which new curbs on travel from certain countries in Europe for 30 days was announced in response to the coronavirus outbreak.

The World Health Organization designated the coronavirus as a pandemic earlier on Wednesday, and the number of infections is growing in the United States.

The S&P 500 index sank nearly 7% by mid-morning, while the Dow Jones industrial average was down nearly 8%, or more than 1,800 points.

“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.”

Treasuries rallied across the curve with the 10-year benchmark note yield down 12 basis points at 0.703% early Thursday.

High-grade bonds were softer in the secondary market, a source said.

Boeing Co.’s 2.95% senior notes due Feb. 1, 2030 (A3/A-) were down to 93.37 early Thursday from 93.64 on Wednesday and 101.90 on Monday. On Friday, the notes traded with a 107 handle.

The company 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.

Starbucks Corp.’s senior notes (Baa1/BBB+/BBB+) that priced on Tuesday have softened in secondary trading.

The company’s 3.35% notes due March 12, 2050 were last seen in the 97 area in early trading, slightly better than 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.

High-grade corporate secondary market volume reached $27.78 billion on Wednesday, compared to $29.12 billion on Tuesday and $19.1 billion on Monday, according to Trace data.

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