To: John Pitera who wrote (3918 ) 5/24/2001 3:05:54 PM From: John Pitera Respond to Interesting that the lack of High grade industrial corporate bonds has some issues such as PG's debt trading atA trader has just brought something very interesting to our attention. That is, he just saw a block of Proctor & Gamble 5 1/4 of 9/03 offered at 51 bp over 2-year Treasuries. Simultaneously, FHLB 5 1/8 9/03 offered at 52 bp over 2-years. This means that high grade industrial paper is trading tighter than agency paper. The trader says that, believe it or not, this has been happening fairly often in recent trading. We are forced to think a bit about the nature of corporate spreads, and the fact that while many make the case saying that they are at wides due to default risk and higher risk premium for the investor, there are issues that investors will pay more for than government sponsored enterprises. As a side note, Proctor & Gamble is on review for downgrade by both S&P and Moody's as the ratings firms do not feel that the potential aquisition of Clairol is beneficial for Proctor & Gamble. we were told that this is a scarcity issue. Briefing.com learned that in so far as corporate issuance goes, there is plenty of it in most of the major sectors: Telecom, Finance, Bank. However, high grade Industrial names issue paper less often. Managers often want this paper in their portfolios, but it is not as readily available. This gets to simple supply and demand. It is in such high demand and there is so little supply that it yields less than agency paper. Go figure
