first- the close could be green
second- the size of the trades is bothersome
third -the bond market
US Corp Bonds-Spreads blow out,stocks tank on war worries
By Nancy Leinfuss
NEW YORK, Sept 21 (Reuters) - Corporate bond spreads blew
out signicantly at the open on Friday and junk bond prices fell
sharply as panicked investors braced for a dismal opening in
stocks, a day after President George W. Bush warned Americans
of a lengthy war on terrorism.
"It's ugly, pack your bags and get out," said one
high-grade trader. "Everything is out by 15 basis points or
more. There's just no liquidity and tons of bid lists."
In the secondary market, spreads, the yield difference
between corporate bonds and comparable-maturity U.S.
Treasuries, widened about 0.15 to 0.20 percentage point,
depending on the sector, traders said.
The prospect of U.S. strikes on Afghanistan, refuge of the
prime suspect in last week's atacks on the World Trade Center
and the Pentagon, added to mounting uncertainty over the
economic outlook.
In early trading, the Dow Jones industrial average raced
sharply into negative territory for a fifth straight day. The
blue chip index plunged 311.72 points to 8,064.49, while the
Nasdaq Composite index slumped 75.7 points to 1,395.23.
Bank and finance paper was seen wider by 0.15 percentage
point while bonds of automakers blew out by 0.20 percentage
point, traders said. More vulnerable sectors such as airlines
and insurance were out substantially more, traders said.
Ford Motor Credit Co.'s <F.N> 10-year notes were seen
trading at a spread of 2.75 to 2.80 percentage points over
Treasuries, traders said.
Aerospace giant Boeing Co.'s <BA.N> five-year paper was
quoted at a spread of 1.65 percentage points over Treasuries,
about 0.15 percentage point wider than Thursay, traders said.
No quotes were seen on any debt of major airlines, as
trading remained very illiquid in the fragile sector that has
been plagued by a slump in air travel following the attacks and
a series of downgrades, traders said.
"It's very tough out there.We're grappling to find out
where everything is. Trading is extremely thin," another trader
said.
Overall, since last week's attacks, spreads have blown out
anywhere from 0.20 to 0.45 percentage point, depending on the
sector, traders said.
"We're really in a situation where spreads are being driven
by what's happening in the Treasury curve, but we think this is
a short-term event," said Christopher Ayoub, portfolio manager
at Merrill Lynch Asset Management, in Jersey City, New Jersey.
He said he may sell Treasuries to allocate more to his
corporate bond portfolio.
Ayoub said the corporate bond market represents a good buy
opportunity when investing with a long-term perspective.
"We view the spread widening as a buy opportunity. We just
have to get through the nervousness overhanging the market,"
Ayoub said. "Corporate America is going to be fine. We're
choosing to stay with our position."
In the junk bond sector, prices fell sharply by three to
four points in very thin trading, players said.
"Everything is weaker. Bids are hard to find. Only liquid
paper is being quoted," said one junk trader. "Everyone's
panicking right now because of the Dow open and fear
triple-witching is expected to contribute further to the
negative tone," the trader said.
Also weighing down the market was the largest outflow this
calendar year from U.S. junk bond mutual funds. Investors
yanked $685 million in cash from the sector as they fled
riskier assets in wake of the attacks.
"I don't think we've been permanently impaired, but it
seems as if the markets are acting as if we are," said
Christopher Towle, high-yield portfolio manager for Lord Abbett
& Co. in Jersey City, New Jersey.
"You have uncertainty in every channel, whether it's the
economy, whether it's military action, global conditions," said
Towle.
In other markets, 10- and 30-year Treasuries gained 15/32
and 9/32, as their yields rose to 4.685 and 5.608 percent
respectively.
QUALITY PREVAILS
While some bond investors have opted to ride out the recent
turmoil on the sidelines, others have opted for the safety of
higher-quality deals such as those sold this week by IBM
<IBM.N>, media giant Walt Disney Co. <DIS.N>, and General
Electric Capital Corp. <GE.N>, dealers said.
"These represent some of the strongest names based on
credit fundamentals. Anyone with a long-term view of the market
knows that these names represent value," said Ayoub, of Merrill
Lynch Asset Management.
Other issuers are expected to capitalize on the strong
demand for better-rated names and bring debt to market.
Already, the market is expected to see $4 billion in bonds next
week from pharmaceutical giant Bristol-Myers Squibb Co.
<BMY.N>, dealers said.
Independent oil and gas company Devon Energy Corp. <DVN.A>
said its finance arm plans to sell up to $3 billion of debt to
help it buy Anderson Exploration Ltd. and Mitchell Energy &
Development Corp.
Market sources said poultry giant Tyson Foods Inc. <TSN.N>
plans by late next week to privately sell $2 billion to $2.5
billion of senior notes to help it buy beef and pork processor
IBP Inc. <IBP.N> The sale was originally expected last week.
For a complete list of upcoming, or recently priced bond
deals, please click on [nNEUBD4].
223-6312 ))
For other U.S. fixed-income market reports, please
doubleclick on the following:
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[US/I]........U.S. debt futures technicals
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[USC/]........U.S. corporate debt
[MTG/]........U.S. mortgage-backed securities
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REUTERS
Rtr 12:02 09-21-01
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