On February 26 in the U.S. bond market, there were 24,966 bond trades in the senior non-call fixed rate corporate bond issues of 760 bond issuers representing $7,919,219,136 in notional principal. Which companies were the leaders in trading volume, and why were they the volume leaders? We answer those questions in this note.
Conclusion: Cisco Systems Inc. (NASDAQ:CSCO) was the trading volume leader on February 26, 2014. Following in ranks 2 through 6 were Citigroup Inc. (NYSE:C), Goldman Sachs Group Inc. (NYSE:GS), Morgan Stanley (NYSE:MS), and Novartis Capital Corporation, an affiliate of Novartis AG (NYSE:NVS).
Compiling Trading Volume
In analyzing the most actively traded issuers of the day, we used these criteria:
Issuer type: Non-government issuers traded in the United States
Main issuers: Publicly traded corporations of various nationalities
Bond type: Fixed rate
Seniority: Senior debt
Trade Volume: More than 0
Bond trading data is secured from TRACE. The National Association of Securities Dealers launched the TRACE (Trade Reporting and Compliance Engine) system in July 2002 in order to increase price transparency in the U.S. corporate debt market. The system captures information on secondary market transactions in publicly traded securities (investment grade, high yield and convertible corporate debt) representing all over-the-counter market activity in these bonds. The data has been compiled by Kamakura Risk Information Services.
Here are the trade volume rankings, listed for the top 40 in dollar trade volume. Cisco Systems Inc., which launched an $8 billion bond offering this week, leads the list:
The percentage distribution of trading volume by issuer is shown in this histogram:
An inspection of the volume leaders makes the reason for "high volume" apparent:
- The issuers have done a large recent bond issue, like Cisco Systems Inc.
- The issuers have a large volume of fixed rate senior debt outstanding, like Citigroup Inc., Goldman Sachs Group Inc., and Morgan Stanley.
- There is a merger transaction or other events, which trigger a diversity of opinions about the credit-worthiness of the issuer, like Comcast Corporation (NASDAQ:CMCSA), ranked ninth today, and Time Warner Cable (NYSE:TWC), ranked 15th.
For the most part, the most heavily traded names are investment grade by both the new Dodd-Frank definition and the traditional definition based on legacy credit ratings.
Trading volume in the corporate bond market is an important source of information for both equity and fixed income investors, particularly in light of the disappointing volumes in the credit default swap market and concerns about the competitiveness of that market.
Regular readers of these notes are aware that we generally do not list the major news headlines relevant to the firms in question. We believe that other authors on Seeking Alpha, Yahoo, The New York Times, The Financial Times, and the Wall Street Journal do a fine job of this. Our omission of those headlines is intentional. Similarly, to argue that a specific news event is more important than all other news events in the outlook for the firm is something we again believe is inappropriate for this author. Our focus is on current bond prices, credit spreads, and default probabilities, key statistics that we feel are critical for both fixed income and equity investors.
Additional disclosure: Kamakura Corporation has business relationships with a number of organizations mentioned in the article.