US corporate credit spreads held value on Friday, after some gains this week on the back of better-than-expected financial earnings. Overall US corporate bonds traded in a range on Friday and were little changed in afternoon trading, while the benchmark investment grade credit derivative index narrowed to about 138 basis points compared to 141 basis points on Thursday, according to Markit Intraday.
"There are no major macroeconomic releases today, and the pace of earnings is slower relative to the past few days as well," Barclays Capital said in a report. Citigroup Inc posted a smaller-than-expected quarterly loss for the second quarter of $2.5 billion, boosting shares of the largest US bank by assets.
Citigroup's 5.5 percent notes due in 2013 gained, as spreads narrowed 7 basis points to 298 basis points on Friday, according to MarketAxess data. The cost of protecting Citigroup's debt with credit default swaps for five years fell to 155 basis points, or $155,000 a year to protect $10 million of debt, down from 170 basis points on Thursday, according to Phoenix Partners Group.
Citigroup's results followed a series of bank earnings this week. J.P. Morgan Chase & Co on Thursday posted a smaller-than-expected drop in earnings on resilient stock and bond underwriting revenue, but cautioned that the mortgage market and the economy are worsening.
Merrill Lynch & Co, Wall Street's third-largest investment bank, posted a $4.9 billion loss on Thursday and sold its 20 percent stake in Bloomberg LP back to the news and financial data company for $4.43 billion to raise capital. The bank may still be forced to sell its valuable stake in fund manager BlackRock to bolster its balance sheet, research firm CreditSights said in a report.
Those latest results mean Merrill has racked up losses of $19 billion over the past four quarters, effectively wiping out four years of profit leading up to the year-long credit crisis.
The BlackRock stake "may be in play if hot stove losses continue, even though the company indicates otherwise," CreditSights analyst David Hendler co-wrote in a report, released late Thursday. The Merrill earnings came after Wells Fargo & Co on Wednesday reported surprisingly strong quarterly results and raised its dividend, sparking a rally in financial shares and bonds.