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The yield on the 30-Year Treasury Bond is now over 4.60% and the 10-Year Treasury Note is yielding 3.75%. It was just at the last bond auction that the T-Bond was 4.49% and sold at 4.52%, and the 10-Year’s yield was a mere 3.20% on November’s closing yield. Most traders will look at the prices of the on-the-run bond futures rather than an outright yield, but that inverse relationship between price and yield is always present. These rising yields might not be a major concern on the surface and when considering we are in the holiday trading with lower market participation, but these yields look like they are bumping against the highest yields in July and August. Much more weakness in price will have these yields at a critical juncture and where rates will be headed in 2010.
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Posts related to ‘Bonds’
Longer Treasury Yields Reaching Critical Juncture
No One Wants Treasury Long Bonds
The United States’ insatiable demand to borrow is still facing hurdles over whether new buyers want to buy longer-date maturities. Sure, our short-term bills are fine, but as you go farther out the curve, the demand to loan the government money for 30-years is much smaller. Today marked the $13 billion Long Bond auction for the 29-Year and 11-month maturity due in November 2039. Based on the tone, you can imagine that it was not well received. CNBC’s Rick Santelli is a vocal figure enough of the time without us pointing him out, but he gave the auction an “F” for a report card grade.
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Credit Analyst Surprise in Boston Scientific (BSX)
A surprising ratings agency call is helping Boston Scientific Corp. (NYSE: BSX) after the company made a debt issuance filing. As Boston Scientific is (and has been for ages) a turnaround which hasn’t turned around, this may be a very positive development for the company. Both Fitch and Moody’s have kept Boston Scientific in junk territory after the proposed issuance of $1 billion in unsecured notes. Fitch has given the company a rating of “BB+” with a positive outlook and while Moody’s rated these new notes “Ba1″ with a stable outlook. Standard & Poor’s is the standout call today as its call takes Boston Scientific out of junk status. The new “investment grade” rating is “BBB-” for its corporate credit rating and for the unsecured notes.
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Spain Joins Credit Rating Negativity (BBV, STD, REP, TEF, SNF, EWP)
Monday and Tuesday came the downgrades for Greece by ratings agencies. Now it is Spain’s turn, or at least the writing is on the wall. Standard & Poor’s has revised Spain’s outlook to “Negative,” although its ratings have been affirmed and this does not signal an imminent ratings cut on the sovereign debt. S&P noted, “We are revising the outlook on the Kingdom of Spain to negative from stable, and affirming the ‘AA+’ long-term and ‘A-1+’ short-term sovereign credit ratings.” On this caution, we are watching several key Spanish ADRs that trade in the U.S. and a closed-end fund and an ETF.
The stocks are Banco Bilbao Vizcaya Argentaria SA (NYSE: BBV) and Banco Santander SA (NYSE: STD) as the two big Spanish banks; and watching REPSOL YPF SA (NYSE: REP) in oil and gas and Telefonica SA (NYSE: TEF) in telecom. There is also a closed-end fund and an ETF: Spain Fund Inc. (NYSE: SNF), with very thin volume and only a market cap of $67 million; and iShares MSCI Spain Index (NYSE: EWP).
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Greece’s Rating Woes Weigh on Greek ADRs (NBG, OTE, CCH, DRYS, DSX, EXM, NM, TOPS, TNP)
Fitch Ratings joined in with a downgrade of Greece’s credit rating following a similar action yesterday by Standard & Poor’s. The downgrade this morning was to “BBB+” from “A-”… and the ratings outlook remains negative. The downgrade was based upon medium-term outlook for public finances with weak credibility of fiscal institutions and the policy framework in Greece. This is weighing on Greek shares that trade in the U.S. to the tune of National Bank of Greece SA (NYSE: NBG), Hellenic Telecommunications Organization SA (NYSE: OTE), and Coca-Cola Hellenic Bottling Company S.A. (NYSE: CCH).
While international shipping companies operate globally, international maritime law and domicile has favored Greek flags for where corporate headquarters happen to be located. There is also a notion that Greeks have been among the world’s greatest seafarers for generations, but here is how these are performing today: DryShips, Inc. (NASDAQ: DRYS) is based in Athens, its shares are down 1.6% at $6.16. Diana Shipping Inc. (NYSE: DSX) is based in Athens, its shares are down 3.9% at $14.98. Excel Maritime Carriers, Ltd. (NYSE: EXM) is based in Athens, its shares are down 3.3% at $6.79. Navios Maritime Holdings Inc. (NYSE: NM) is based in Piraeus, its shares are down 1.5% at $5.86. Top Ships Inc. (NASDAQ: TOPS) is based in Athens, its shares are down 1% at $1.02. Tsakos Energy Navigation Ltd. (NYSE: TNP) is based in Athens, its shares are down 2.7% at $16.01.
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Vanguard Tries 7 New Bond ETF Offerings (VGSH, VGIT, VGLT, VCSH, VCIT, VCLT, VMBS)
Vanguard has just launched seven new bond exchange traded funds today. We are seeing very thin trading volume, and that will be the single biggest benchmark used for whether or not these become a success or whether they become just another slate of ‘me-too’ ETF offerings.
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The More Focused, and More Opaque, Buffett & Berkshire Hathaway (BRK-A, BRK-B, BNI, UNP, NSC, GS, GE, TIF, HOG, WMT, COP, XOM, WFC, RSG, DOW, ETN, WBC, MCO, WLP, UNH, GSK, SNY, GCI, WPO)
This was an important week for investment guru and billionaire watchers to see which gurus were holding which stocks. The full public equity holdings of Warren Buffett via Berkshire Hathaway Inc. (NYSE: BRK-A) were particularly of note, particularly with those B shares under “BRK-B” soon to split and giving a chance for even the less astute ranks of Joe Public to own a piece of the Berkshire dream. Obviously the huge change is via the Burlington Northern Santa Fe Corp. (NYSE: BNI) buyout. As part of this deal, Buffett is exiting Union Pacific (NYSE: UNP) and exiting Norfolk Southern (NYSE: NSC) stakes of about $600 million and $100 million, respectively, to avoid duplication and internal competition. The rail transport play now accounts for about one-quarter of the total Berkshire Hathaway entity upon closing. But the less obvious position in that Warren Buffett in 2009 has made it clear that there will be a simpler and probably less “stock-hound” version of Berkshire Hathaway ahead.
Buffett has gone higher up the food chain and is likely to be a creditor now inside or to large institutions. We have seen this during the crisis. Buffett negotiated a better deal for Goldman Sachs Group (NYSE: GS) than the US Government was able to get. Buffett’s preferred stock in Goldman Sachs has a dividend of 10% and is callable at any time at a 10% premium; but Buffett also got warrants to purchase $5 billion of common stock with a strike price of $115.00 per share, exercisable for a five-year term (4 years now), and Buffett would effectively get to pocket $61 per share if he exercised those all today at the market (and with a $2.6 billion warrant profit alone).
The General Electric Co. (NYSE: GE) stake was listed only as 7.77 million shares of common stock (about $125 million now), the same as it has been for quarters. Yet last year Buffett came to the rescue with a $3 billion of perpetual preferred stock in a private offering with a dividend of 10% and warrants to purchase $3 billion of common stock. The preferred is callable after 3-years (2 years now) at a 10% premium; the warrants have a strike price of $22.25 and are exercisable for a five-year term (4 years now).
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Long-Bond Auction Conundrum
Earlier today came the results from a highly awaited $16 billion 30-Year Treasury bond auction… the famed ‘Long Bond.’ The 30-Year yield went out to buyers at 4.469%, just over 0.04% or 4 basis-points, higher than what the when-issued bill had been trading at. In short, this was not exactly a high-demand auction. The bid-to-cover ratio was 2.26. While not awful, this is far from a successful auction for the long-end of the yield curve.
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SIRIUS Cautious Praise At S&P (SIRI)
SIRIUS XM Radio Inc. (NASDAQ: SIRI) has been reaffirmed on its corporate debt rating at “B-” late in the day. While this is still very deep in “junk bond” territory at S&P, the outlook has been revised to positive from stable. This is after the earnings that we called mostly headed in the right direction last week, but it follows a relatively recent mid-August upgrade by S&P and it is fairly rare to see another call this fast on a controversial stock (and company) like Sirius. Still, there are some mixed notions in the call as the rating is so far from investment grade status.
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Moody’s to AIG Rescue? (AIG)
American International Group, Inc. (NYSE: AIG) is running this morning. The stock is trading higher this morning on a debt rating comment from last night. It turns out that Moody’s might have some relevance after all with the gains we are seeing. Moody’s issued a report last night noting that AIG will be able to repay its Federal Reserve credit line, and that it will be able to repay much or all of the investment from the US Treasury Department’s if financial markets stabilize. That is still an “IF” and not a definite event.
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Cisco Raising Cash By Selling Debt (CSCO)
Cisco Systems, Inc. (NASDAQ: CSCO) has filed a preliminary prospectus supplement under an existing shelf registration with the SEC this morning for a three-part debt offering. While no final amount was stated, and no terms and no maturities were given, these are likely in the process of getting worked out now. The networking giant plans three maturities of senior notes in an offering via Barclays Capital, Credit Suisse, Deutsche Bank Securities, BofA Merrill Lynch, HSBC, and J.P. Morgan.
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The Fannie-Freddie Equity Conundrum (FNM, FRE)
It is no secret that things could be much better at Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). But the last week or so has re-highlighted just how dire the situation is for these government sponsored entities and perhaps more importantly for the common shareholders. Both Freddie Mac and Fannie Mae were forced into federal conservatorship last year by Uncle Sam.
We have taken an in-depth look here at the situation and the past to get a feel for the future of these companies (GSE’s). If you parse through the data and watch what has been happening in Washington D.C. of late, there is the clear reminder that these emperors have no clothes on. In the world of Star Trek, these companies stockholders may be facing a Kobayashi Maru scenario.
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Icahn Claims Close to Par Value in CIT Bonds (CIT, GS)
CIT Group, Inc. (NYSE: CIT) has had a lot of news this week. A lot this year for that matter. Last night there was word that it had reached a loan agreement with Goldman Sachs Group (NYSE: GS). And even earlier this week came challenges from Carl Icahn over the removal of management and a commitment for a $6 billion loan. And then today, Icahn is stepping his efforts with an open letter to CIT bondholders. If you are a shareholder of common stock in CIT, what is in the best interests of bondholders and creditors is not necessarily the same as being in the best interest of the common shareholders.
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Nuveen: Florida Closed-End Muni Funds Roll Into National Funds (NIO, NPM, NEA)
Nuveen has been the largest player in single-state municipal bond closed-end and open-end bond funds for years and years. If you look in Barron’s each week under closed-end mutual funds data to find premium/discount data or yield data on closed-end funds, you will see scores and scores of Nuveen single-state municipal bond funds in there. But today came the announcement that four of these funds that are tied to the state of Florida have completed their mergers into national bond funds. While this has been a developing situation in recent weeks, this could have implications for other such single-state municipal bond funds which investors seek for tax-free income.
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Level 3 Filing Pressure Shares, Maybe Unjustly (LVLT)
Level 3 Communications, Inc. (NASDAQ: LVLT) has just disclosed in an SEC filing the “Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.” The company noted that it consummated the transactions contemplated by a Securities Purchase Agreement that it executed with certain investors on October 1, 2009 in connection with the offering and sale of $275,000,000 aggregate principal amount of its 7% Convertible Senior Notes due 2015, Series B. A copy of the Purchase Agreement was previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on October 2, 2009, and is incorporated herein by reference. It appears that the title of the filing has made more of an impact than the actual terms.
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S&P Quasi-Endorses GE’s NBC Universal Plans (GE, CMCSA)
Standard & Poor’s Ratings Services has reviewed the ramifications of reports about General Electric Co.’s (NYSE: GE) plans for NBC Universal. The ratings agency has said that a partial sale or IPO of NBC Universal would not adversely affect the AA+/Stable/A-1+ evaluation of GE’s “excellent business risk profile.” S&P had previously stated it would review the outlook or rating on GE if strategic shifts in all of GE’s portfolio of businesses jeopardized the S&P view.
GE owns 80% of NBC Universal and Vivendi S.A. controls the remaining 20%. Each November, Vivendi can offer GE notice of its intent to exercise its right to exit over the following year. This new data is on reports that GE and Comcast Corp. (NASDAQ: CMCSA) have been in discussions over forming a joint venture to take over NBC Universal ownership. This is also following indications from GE that an NBC Universal IPO is possible.
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Technical Analysis Predictions For Q4 (SPY, UUP, UDN, GLD, TLT, TBT)
Maybe it is time after a 50%+ gain in the major equity indexes, or maybe it is just everyone getting into the October bearish mode. We are hearing more and more calls for a very weak equities market ahead. One of our affiliates just ran a detailed audio/video presentation showing what the charts are expecting for Q4-2009 in the S&P 500, the US Dollar Index, Gold, and even bond yields. Unfortunately this is a bad prediction for stocks and can be tracked directly by the SPDR (NYSE: SPY), or Spyders. This prediction also has some gloom forecast for the US Dollar Index, which can be tracked in the PowerShares DB US Dollar Index Bullish (NYSE: UUP) and in the PowerShares DB US Dollar Index Bearish (NYSE: UDN). That is partly for the call for much higher Gold, which can be tracked most easily in the SPDR Gold Shares (NYSE: GLD). The prediction for bonds was not as finite, but at record lows we can’t really argue with the logic that yields can only go one way unless sideways is considered a directional change.
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FOMC Preview: The Fed Exit Policy Conundrum
Around 2:15 PM EST today, we will know the FOMC’s decision on interest rates. While we expect no formal change to the effective 0.00% to 0.25% effective Fed Funds rate, we expect traders to pay closer and closer attention to what Ben Bernanke and friends say regarding when the ultimate exit strategy will come on the free money and what to expect as far as ongoing securities purchases and other liquidity programs. More importantly, we will be paying close attention to just exactly when the markets start determining the forward date for when rates will rise by looking at Fed Fund Futures over the next day or two.
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Chimera & Annaly Dividend Hike, Profits In Mortgages (CIM, NLY)
Investing in mortgages might not be as bad as many thought. Chimera Investment Corporation (NYSE: CIM) has already raised more capital on more than one occasion since coming public in 2007 when the mortgage arena was in the process of going from weak to bottomless. We were intrigued by its vulture investing intentions as it bought up distressed mortgages, particularly as it was tied to the very successful Annaly Capital Management, Inc. (NYSE: NLY). Despite the notion that Chimera became a vulture too soon and well before any bottom could be found in sight, Chimera must be doing pretty well again. Ditto on Annaly. This mortgage REIT status requires each to pay out 90% of its income and Chimera just hiked its dividend to $0.12 for the Q3-2009 period. Annaly also just hiked its dividend payout today to $0.69, which might actually be its highest payout ever.
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FOMC Preview: The End of Free Money Coming Soon
The FOMC is expected to give us a decision on interest rates this Wednesday, September 23 around 2:15 PM EST. One tool we prefer to use for determining the direction of Fed Funds is long standing 30-Day Fed Fund Futures contracts traded on the CME. We are seeing a mix of several events culminating here over the question of whether the target Fed Funds should be at this 0.00% to 0.25% or near-0% as it has been now that things are getting less-bad and even getting better. The notion here is that the announcement for the Fed Funds target will remain as it has been. And contrary to all of the other noise, this might not be the last FOMC statement without a formal exit from the Federal Reserve from its free money policy. But there is also the notion that rates could get higher and faster than what the Fed Funds Futures are predicting.
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