US corporate bond spreads wrapped up the week mostly unchanged on Friday and activity was light as traders marked time ahead of Tuesday's presidential election.
Spreads will likely remain range-bound until a winner is known as investors worry about the possibility of a disputed election, as occurred in 2000, traders said.
A Reuters/Zogby tracking poll released on Friday showed President George W. Bush and Sen. John Kerry in a dead heat with 47 percent support each among likely voters.
"The worst thing that could probably happen is that there isn't a conclusion on Tuesday and that it drags on for several months," said Mark McCarthy, head of credit strategy at FTN Financial. "With a clear victory, we would expect spreads to grind tighter throughout the balance of the year," he said.
In the month after the disputed 2000 presidential election, spreads on US corporate bonds widened by about 0.10 percentage point, according to Merrill Lynch & Co.
Whether Kerry or Bush wins should not make a big difference for the broad corporate bond market, although a few sectors may be influenced by the results, McCarthy said. A Kerry victory would likely hurt pharmaceutical bond spreads because of his plans to lower costs of prescription drugs, while tobacco companies and others hoping for tort reform may benefit from a Bush win, McCarthy said.
In the new issue market, Citigroup sold $1 billion of 10-year floating rate notes priced at 0.28 percentage point more than three-month London interbank offered rate and $500 million of 10-year senior notes yielding 0.65 percentage point more than Treasuries.
In the credit derivatives market, the cost of insuring a basket of investment-grade bonds, as measured by the Dow Jones CDX.NA.IG Series 3, fell about 1 basis point to 52.5 basis points.
High-yield bonds rose about 1/4 point overall as a relative dearth of new bond supply supported the market.
In other markets, benchmark 10-year US Treasuries rose 6/32, yielding 4.03 percent, helped by short-covering ahead of the election.
Comments
Comments are closed.