Corporate Market Close

February 27th, 2008 1:29 pm | by John Jansen |

 Corporate bond spreads waxed and waned today with the drifting fortunes of the stock market. I mentioned yesterday that the tone had improved and that seems to be the case again today,too. Here are several factors contributing to the new improved psychology in the corporate market.The IG9 index has stabilized and after trading in the 160s is now sits close to 140. ( At one point this morning it traded in the low 130s.) The affirmation of credit ratings of the monoline insurers has had a therapeutic effect and convinced some investors that the end of the world is not so imminent. Single name CDS spreads have begun to tighten. One portfolio manager with whom I spoke noted that HD had sour earnings but the CDS tightened quite a bit as investors believe that a restructuring which sacrifice the interests of bondholders is unlikely to occur.

The steepeness of the yield curve has also generated business flow. The 5year/10 year spread in Treasuries is about 100 basis points and the steepeness provides opportunities for roll down trades in the 7 year and 8 year part of the yield curve.

There has been an active new issue calendar,too and deals have been upsized and they have traded well on the break. Deals still come at a concession but the concession are not as outsized as a few weeks ago.

Against that background Citibank came to market today for $2.5 billion of 30 year money. The deal will price around 230 basis points cheap to Treasuries and that is a concession of about 15 bsis points to outstanding paper.

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