LATEST:- CREDIT MARKETS: Goldman Earnings Boost Market; CIT Stabilizes

Wednesday, November 25, 2009

   By Kellie Geressy-Nilsen
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Credit markets were lifted Tuesday as Goldman Sachs Group Inc. (GS) beat analysts' estimates for second-quarter earnings, helping to give a much-needed boost to the battered bank and finance sector.

Goldman posted record profits - reporting second-quarter earnings of $3.44 billion, 65% higher than last year's $2.06 billion. The better-than-expected results inspired investors and helped to buoy financial bonds and cut the cost to protect them.

Goldman credit default swaps were down sharply following the second-quarter results, quoted at 142 basis points, down from 150 basis points prior. CDS levels on other finanicals were also down, according to Phoenix Partners Group.

And risk premiums on Goldman's outstanding non-guaranteed bank debt narrowed by as many as 10 basis points, according to one bond trader.

Earnings reports from Citigroup (C), JPMorgan Chase (JPM) and Bank of America Merrill Lynch (BAC) are expected later this week.

Meanwhile, CIT Group Inc. (CIT) may be getting some aid from the federal government, but a decision on whether or not the lender will be spared from bankruptcy filing is still pending.

And despite a concrete decision by the government pertaining to aid, some think that a bankruptcy of CIT isn't imminent. Goldman Sachs analysts Louise Pitt and Joseph Schatz write that restructuring of its existing capital and debt structure is a priority which could lead to government aid. But even if CIT is able to carry out initiatives to boost its near-term liquidity, the analysts are still concerned over the viability of CIT from a longer-term funding and profitability perspective compared with larger, better-rated domestic banks.

Also Tuesday, the U.S. Department of Justice announced it had opened an investigation into the complex market for credit default swaps - a sector of the market that was a major contributor to the credit crisis.

Market Group Holdings Ltd. received a request from the DOJ's antitrust division for information relating to price transparency in the credit derivatives and related markets, according to one person familiar with the inquiry.

"We will work with the Department to provide any information requested of us," Markit said in a statement. Markit buys and distributes some news feeds from Dow Jones Newswires.

Still, credit derivative markets showed little reaction to news of the probe.

   Corporates See Moderate Activity

The high-grade corporate bond market was relatively quiet on Tuesday, as the focus remained on earnings reports.

CareFusion Corp., was in the market with a benchmark-sized three-part bond offering that included three-, five- and 10-year senior notes. Deutsche Bank, Goldman Sachs and UBS served as active bookrunners for the issue. CareFusion is set to become public from the planned spinoff of Cardinal Health's clinical and medical products businesses.

And the benchmark high-grade credit derivatives index, the Markit CDX North America Investment Grade derivatives IG12 index, was last quoted 3.5 basis points narrower on the day to 139 basis points, according to Phoenix Partners Group.

The high-yield market was generally flat, with activity again dominated by CIT Group Inc. (CIT). Several CIT issues stabilized and traded slightly higher on the day, after falling in previous days, amid reports that CIT remains in talks with the government about receiving some sort of federal aid.

Several market participants said they anticipate some sort of debt exchange offer may be in CIT's future, citing a similar offer by GMAC that reduced that company's debt burden before the government stepped in with assistance.

The cost of protection on CIT's senior bonds via credit-default swaps fell initially Tuesday, to 37 points upfront from 41 late Monday, but rose again later to 40 points upfront, according to Phoenix Partners Group, which noted that trading in the CDS was limited. That means it now costs about $4 million plus a $500,000 annual fee to insure $10 million of CIT bonds for five years.

   Commercial MBS Index Hit

Bonds backed by commercial mortgages were hit Tuesday after Standard & Poor's downgraded several CMBS issues.

The CMBX Series 5, the most recent derivatives index based on bonds backed by commercial mortgages, was down by three points to 72 cents on the dollar, according to Derrick Wulf, a senior portfolio manager at Dwight Asset Management in Burlington, Vt.

S&P cut several of these securities because of a recent change in its rating methodology.

   Mortgages and Agency Debt

Mortgages pulled back after widening earlier in the day, says John Sim of JPMorgan. According to Sim, the current coupon spread over a blend of 5-year and 10-year Treasurys narrowed about half a point to 145 basis points.

Spreads widened out even further in Agency market afternoon trading, according to Tradeweb, amid a sell-off and correspondingly rising rates in the Treasury market.

Short-term paper continued to be the hardest hit, but 5-year, 7-year and 10-year paper followed suit.

Agency spreads had narrowed into the low single digits, before the widening this week. Fannie Mae 1.375% 2-year notes were recently quoted 4 basis points wider at 8 basis points/5.3 basis points bid/offer, according to Tradeweb.

   Treasurys

Treasury prices fell again Tuesday as investors, cheered by stronger-than-forecast retail-sales data and upbeat earnings from Goldman Sachs, moved away from the relative safety of the government bond market.

Data that showed an unexpected hefty boost in producer prices also gave investors pause about heading into Treasurys, especially longer-term ones. Higher inflation hurts long-dated Treasurys as rising prices eat into fixed returns. The day's losses built on weakness Monday, when Treasurys fell as stocks rose.

Selling has put the brakes on the rebound Treasurys were making over the past month, which had pushed the 10-year note's yield down more than 50 basis points after pushing up to 4% in early June.

In afternoon trade Tuesday, the 10-year note was off 28/32 to yield 3.46%. The 10-year was yielding 3.30% on Friday. The 30-year bond was in the worst shape, down by 2 to 4.36%. The two-year note was down 2/32 to yield 0.94%. Bond yields move inversely to prices.

- By Kellie Geressy-Nilsen; Dow Jones Newswires; (212) 416-2225; kellie.geressy@dowjones.com

0 comments:

Post a Comment

 
 
 

Advertisement

Advertisement

Advertisement