Corporate Bonds Mostly Weather Storm as Stocks, Treasury Yields Fall

By Sam Goldfarb

Friday's downturn in stock prices is having some modest spillover effects in the corporate-bond market as traders react to falling Treasury yields and the latest bad economic data out of Europe.

The decline in Treasury yields is putting particular pressure on bank bonds given the potential for low yields to shrink lenders' net interest margins, traders said.

A Citigroup Inc. 4.075% note due 2029 recently traded with an excess yield, or spread, to U.S. Treasurys of 1.33 percentage points, according to Market Axess, up from 1.29 percentage points Thursday. The spread on a 10-year Bank of America Corp. bond also ticked up as much as 0.03 percentage point to 1.33 percentage points, though it stood at 1.31 percentage point in recent trading. Shares of Citigroup were down 4.4% and Bank of America was down 3.9% Friday afternoon.

Lower down the credit spectrum, some newly issued speculative-grade bonds were trading down roughly 0.5 cents on the dollar, reflecting the reduced appetite for riskier assets among investors.

The moves were more significant when measured against government bonds, given Friday's sharp decline in Treasury yields prompted by weak German manufacturing data.

While Tesla Inc.'s 5.3% notes due 2025 were recently down just 0.25 cents on the dollar, their extra yield over Treasurys at one point Friday jumped to 5.99 percentage points -- their highest on record -- from 5.83 percentage points Thursday, according to MarketAxess.

Prior to Friday, corporate bond investors have held a relatively optimistic outlook on the U.S. economy. The average speculative-grade bond spread was just 3.8 percentage points Thursday, down from 5.26 percentage points at the end of last year, according to Bloomberg Barclays data.

That benign market backdrop has allowed companies to sell nearly $57 billion of speculative-grade bonds in the U.S. so far this year after issuing less than $15 billion of bonds in the last three months of 2018, according to LCD, a unit of S&P Global Market Intelligence.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

March 22, 2019 14:40 ET (18:40 GMT)

Bank of America (NYSE:BAC)
Historical Stock Chart
From Mar 2024 to Apr 2024