Corporate Bonds

August 15th, 2008 2:54 pm | by John Jansen |

There was very little trading of cash securities in the corporate bond market and spreads have moved very little.The IG 10 is 134/135 which is about where it began the day.

The real action is in the new issue market where American Express had the temerity to offer $2billion 5year notes on a summer Friday. The pricing talk is T+425. American Express has an outstanding 5 year note which they offered in may about 1 5/8 percentage points cheaper(for them) than this bond. The outstanding issue earlier in the week was quoted T+ 330 which makes the new is nearly 100 basis points cheap to the outstanding.

Any one who thinks that credit conditions are improving is smoking rope. They are getting worse and this is a prime example of the gravity of the problem.

Let me offer one more example of the dislocation and dysfunction in the corporate market. Citibank sold a 5 year note last week at T+ 3 3/8 percentage over the 5year treasury. It priced 40 basis points to 45 basis points cheap to outstanding Citi paper. It is currently wrapped around 330.

The salient point is that if American Express 5 year paper is +425, how can Citi paper can trade about 90 basis points rich to that. They are comparable multinational financial organizations,albeit,with some major differences. But one of those two prices is wrong.

It is difficult to do business and as one friend described it to me, “every transaction is a one off deal”

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