Corporate Bonds

November 3rd, 2008 3:35 pm | by John Jansen |

The corporate bond market has a pacific and placid feel about it today and conversations with veteran salespeople reveals that the market is slightly firmer, on balance, and seemingly a gradual improvement is underway.However, I would offer an alternate view that the market is still broken and dysfunctional.

I was not an active blogger at the end of last week and missed the offering of a 10 year bond and a 30 year bond by Verizon. That very large telecom company with a reasonably pristine reputation issued 10 year notes and 30 year notes 4 7/8 percent above benchmark Treasury debt. The bonds carry 8 7/8 coupons in 10 years and 8.95 in 30 years. Each came 50 basis points to 60 basis points cheap to outstanding VZ debt.

I have asked this question before. If VZ has to pay nearly 9.00 percent to raise capital, what is the fate of a BBB industrial? I suspect they defer any attempts to raise funds. And for financials the world is so confused that for most the market is also closed.

So while the corporate market is manifesting some faint signs of improvement, a true rehabilitation is a distant prospect.

I would also offer the thought that if one can earn nearly 9.00 percent on a 10 year Verizon, why would anyone with a long term perspective charge into the equity.

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  1. 7 Responses to “Corporate Bonds”

  2. By Dan on Nov 3, 2008 | Reply

    “I would also offer the thought that if one can earn nearly 9.00 percent on a 10 year Verizon, why would anyone with a long term perspective charge into the equity.”

    ding, ding, ding, ding

    Who wants the lowest form of the capital structure when we haven’t even experienced the worst of the real world knock-on effects of the debt deflation?

  3. By John Jansen on Nov 3, 2008 | Reply

    thank you

  4. By CreditTrader on Nov 3, 2008 | Reply

    FYI – GATX new issue just came at what we figure is around a 250bps concession to the CDS market’s view of where fair should be!!!

  5. By David Merkel on Nov 3, 2008 | Reply

    Charitably, the forward earnings yield on VZ is 8-9%. Buying the equity when the bonds yield 9% is usually not warranted.

    This is the market mess in microcosm. Only own equities that don’t need financing for a long time, if you own equities at all.

  6. By Alex on Nov 4, 2008 | Reply

    http://ftalphaville.ft.com/blog/2008/11/04/17797/ahead-of-the-curve-cds-inversion/

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