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Bonds are selling off

Investment Grade: The Gap Inc., (NYSE:GPS) – A rising stock market saw shares in the Gap add 2% to $23.02 but its 10-year paper trended in the opposite direction with its 5.95% April 2021 paper losing more than $3.00 per $1,000 face value. Its yield has now jumped from 5.74% last week when 10-year Treasuries yielded 3.16% to 5.97% today with Treasury yields only three pips higher at 3.19%. On sizable volume of almost $60 million trading today it appears that either someone is not so hot on its Baa3 paper any more or simply feels that retail might be coming under the cosh in coming weeks.

High Yield: H&R Block (NYSE:HRB) – We noted in yesterday’s brief that H&R Block’s corporate bonds were offered on account of the breaking story that a group of investors was organizing to force the company to repurchase soured mortgage loans through its Options One Mortgage unit. Today its bonds weakened further with prices moving sharply lower sending yields up as shares in H&R Block headed lower by another 2% to $15.62. Its two-year 7.875% paper shed $2.50 per $1,000 face value to yield 3.80%, while its three-year 5.125% bonds lost $2.75 per $1,000 face value boosting its yield to 4.30%.

Dean Foods (NYSE:DF) – Investors rallied round to buoy shares in Dean Foods after the company hit an easy home-run on first quarter earnings. The group raised its full-year forecast saying it had earned 14 cents rather than an expected six cents and was winning its war against rising food costs. The company is also shedding an additional 140 workers having cut 600 jobs in the first quarter. Shares surged by 15% to a 52-week high while bond buyers lapped up its B2-rated paper carrying a 7% coupon expiring 06/2016. About $7mm paper of that issue changed hands as investors bid bonds up by $2.37 per $1,000 face value allowing its yield to slip to 7.27%.

Community Health Systems Inc. (NYSE:CYH) – Both shares and corporate paper traded slightly better after the nation’s second-largest hospital provider dropped its thrice-rejected bid for Tenet Healthcare (NYSE:THC). It might not be such a bad thing for Community Health either after Tenet’s defense in April saw it lodge a lawsuit claiming its suitor had defrauded Medicare and claimed that any subsequent legal costs would make financing any deal difficult. Since that time Community’s 8.875% July 2015 paper jumped in yield to a range of 8-8.5%. Following today’s lapse in the battle to build the nation’s biggest provider its paper rallied lowering the yield to 7.75%.

Source: Gap 10-Year Bonds: Popular as Acid-Washed Jeans