Wednesday Corporate Bond Brief

Includes: ESRX, F, RBS, T
by: Interactive Brokers

Yields rose on government benchmarks despite continued sovereign debt woes in the Eurozone and further signs of a growth lull in U.S. data. Nevertheless, resilient equity traders drove benchmark index values higher by lunchtime in New York taking further shine off the appeal of corporate debt. Still, there was most demand in the investment grade universe for shorter-dated paper recently issued by Express Scripts.

Investment Grade

Express Scripts Inc. (NASDAQ:ESRX) – Investors nudged the price of bonds issued in April by the home-delivery prescription provider ahead Wednesday pushing its yield down to 2.95%. The $1.5 billion May 2016 maturity issue was well bid earlier with $20mm in value changing hands at a discounted yield to maturity of 2.95% compared to the 3.125% coupon at issue. The company priced the issue at a discount on the launch date to yield 118 basis points over comparable treasuries. Today the government five-year trades yielding 1.77% implying the spread above remains roughly neck-and-neck at 119 basis points. Shares in the company advanced by 1.1% to $59.92 spurred by today’s ‘outperform’ initiation from analysts at Cowen and Co. although still short of last week’s 52-week high at $61.00 per share. The April issuance marks the first for Express Scripts since it last tapped the markets in June 2009.

Royal Bank of Scotland ADR. (NYSE:RBS) – Having struck its lowest share price in seven weeks on Tuesday, investors have forced a rebound today advancing the fortunes of the British lender by 4% to $13.55. Investors responded to a Moody’s warnings yesterday covering 14 British lenders that offered the potential for a ratings downgrade in the event of future financial stresses for the financial sector. Perhaps the rebound comes as investors digest the fact that the report says there is no additional weakness across any of the names or in the health of the British government. Their point is that lenders who can’t stand up after having been dragged through the mill backwards for two years and subject to stress tests, don’t deserve to dip in to the public purse in the future. Meanwhile the bond environment continued to feel the weight of the Moody’s threat of action with investors determining that while they might feast on shares in RBS, the prospect of a lower rating for its bonds was less inspiring. Investors sold about $30mm of Royal Bank’s 6.4% October 2019 paper lopping around $3.50 per $1,000 face value off the price of the bonds sending the yield up to 5.57% for an increase on the day from 11 basis points.

AT&T Inc. (NYSE:T) Perhaps the treasury market is feeling a little heavy after all. Government yields couldn’t press much lower on the back of weakness in durable goods orders while stocks reversed earlier losses. Yields ultimately caved in as dealers offered bonds. Investors turned sellers of AT&T’s longer-dated paper selling $18mm of its February 2039 and $16mm of its September 2040 debt. While benchmark government 30-year yields added around three basis points Wednesday larger price losses for AT&T paper saw yields underperform by a basis point.

High Yield

Ford Motor Co. (NYSE:F) – A near 2% slide in Ford’s shares following weakness in the April durable goods report also saw some investors throw in the towel on its debt on Wednesday. Yields rose on its February 2021 maturity by 16 basis points as bonds shed around $3.00 per $1,000 face value forcing the debt to underperform treasuries by 13 basis points on the day. Ford recently announced that it would sell up to $5 billion in corporate bonds to individual investors through its finance unit, which repeats an initiative adopted around one decade ago.