The credit (corporate bonds) market has been steadily increasing volume, and there have been some interesting issues lately. As I stated in a recent article:
Bottom Line: Corporate bonds are still attractive from a risk premium (spread) perspective relative to their historical levels. While absolute yields continue to be low (although this has recently been changing in the 7-10yr sector due to the treasury sell off), relative yields are still decent and somewhat compelling.
As many investors prefer not to buy bonds at a premium, we have to keep our eyes on the new issue market as newly minted issues typically come at a small concession to existing issues and at par.
Interesting issues recently include:
|Santander HLDG USA,[SOV](SAN)||Baa2/BBB+ (-/-)||$300MM||3yr||+275|
|Tampa Electric (TE)||A3/BBB+/A-||$250MM||10YR||+83|
|Colombia Telecomunicaciones S.A. ESP||BB/BB||10NC5|
|Vodafone Group PLC (VOD)||A3/A-/A-||$1B||5yr||+62.5|
|Vodafone Group PLC||A3/A-/A-||$1B||10yr||+87.5|
|Franklin Resources, Inc (BEN)||A1/AA-||$300MM||5yr||+80|
|Franklin Resources, Inc||A1/AA-||$300MM||10yr||+105|
|Digital Realty Trust, (DLR)||Baa2/BBB||$300MM||10yr||+200|
|J.P. Morgan Chase||A2/ A/ A+||$3B||10yr||+155|
As the above list of deals shows, spreads do seem tight, but relative to the risk free rate, they are still reasonable and offer some value.
Of the newly issued securities, I would look at Vodafone before Tampa Electric as they are both senior unsecured and Vodafone has more diversified operations and some of the best mobile "properties" in the business, not the least of which is Verizon Wireless (VZ).
I would also look at Santander Group (the holding company) before I bought into Santander US as the holding company has a more diversified revenue stream than their US subsidiary and can be had cheaper (I recently saw the 3.724% '15 quoted $99.5 ask side, which is +350/3yr. It is worth noting, however, that Santander Chile [Aa3/A] recently priced a ten year at +232.5bps.
Digital Realty has value at +200 as many similarly rated REITs trade at tighter spreads (Avalon Bay (AVB) is one notch higher rated and trades at +126, Ventas (VTR) 4.25% '22 trade at +165 offered side) and those that trade wider trade at premiums (Mack-Cali (CLI) has the same rating, is an office REIT and trades at +205 offered side at a 5 point premium).
Franklin Resources looks somewhat appealing and has been seeing their assets under management increase across the board over the last few months (equity AUM has begun to pick up in recent months and is up year-over-year). Investors might want to consider Blackstone (BX) as their assets are somewhat "stickier" and address different asset classes and trade north of +250 (offered side) in the ten year (2023) although it is lower rated at A/A+.
Bottom Line: I believe that corporate bonds are still attractive and some of the new issues are attractive to fixed income investors as well as income investors. Yes, there is interest rate risk (duration) which must be considered, but there is value overall.
Disclosure: I am long SAN.
Additional disclosure: This article is for informational purposes only, it is not a recommendation to buy or sell any security and is strictly the opinion of Rubicon Associates LLC. Every investor is strongly encouraged to do their own research prior to investing.