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Monday, February 09, 2009

Some Improvement in Bond Market

by Calculated Risk on 2/09/2009 09:46:00 PM

From the WSJ: Bond Market in Winter Thaw

A growing number of big companies are taking advantage of the thawing credit markets to raise large sums of money at low interest rates, with Cisco Systems Inc. Monday selling $4 billion in bonds ...

The big Cisco offering follows a string of successful efforts just in the past five weeks to tap the market for corporate debt. The size of the offering -- and the relatively low risk premiums attached to the bonds -- indicate that investors are hungry for debt from highly rated companies that issue infrequently.
Cisco's 10-year notes were sold Monday at two percentage points above Treasurys for a yield of 4.979%, while a 30-year portion of Cisco's offering sold for a yield of 5.916%.
Cablevision Systems Corp. had to pay interest of 9.375% to borrow $500 million on Monday. [10 year notes]
Other companies are still shut out of the market completely.
The following graph shows the spread between 30 year Moody's Aaa and Baa rated bonds and the 30 year treasury.

The Moody's data is from the St. Louis Fed:
Moody's tries to include bonds with remaining maturities as close as possible to 30 years. Moody's drops bonds if the remaining life falls below 20 years, if the bond is susceptible to redemption, or if the rating changes.
Spread Corporate and Treasury Click on table for larger image in new window.

There has been some improvement (decline in spread) in recent weeks, but the spreads are still very high - even for higher rated paper - but especially for lower rated paper like Cablevision.