US CORP BONDS-Spreads widen led by financials

NEW YORK, Feb 20 (Reuters) - U.S. credit spreads widened on
Friday on renewed concerns about the health of financial
institutions, which has sparked the start of a widening trend
in corporate bonds.
A rally in corporate debt that began in December stalled
about a week ago. The yield gap between investment-grade
company bonds and Treasuries has widened to about 531 basis
points, versus 516 basis points on Feb. 12, a sign of growing
perceptions of risk by investors.
Those spreads had rallied back from a peak of 656 basis
points on Dec. 5, tracking a similar trend in high-yield bonds,
according to Merrill Lynch & Co data.
"We expect spreads to remain at their elevated levels for
some time as investors, the credit markets, and the economy
cautiously tread through the current recessionary period,"
Standard & Poor's analyst Diane Vazza said in a report.
She cited concerns about an acceleration of
speculative-grade defaults, a higher preponderance of credit
downgrades, and "a general malaise about the future of the
economy".
The main index of investment-grade credit default swaps
widened by about 7 basis points to about 207 basis points,
according to data from Markit Intraday.
Financial names took more hits on Friday, as the cost of
insuring Citigroup's debt with credit default swaps rose
sharply as fears that the bank may be nationalized hammered its
shares.
Citigroup's five-year credit default swaps widened to 450
basis points, or $450,000 a year to protect $10 million of
debt, after closing around 405 basis points on Thursday,
according to data from Phoenix Partners Group.
Spreads on Citigroup's 6.125 note maturing in 2018 widened
by 49 basis points on Friday to 599 basis points, according to
MarketAxess data.
Bank of America's credit default swaps also widened as
investor fears that it too could be nationalized sent its
shares to multi-year lows.
Five-year credit default swaps on Bank of America widened
by about 15 basis points to about 260 basis points, according
to data from Phoenix Partners Group. For details click
on [nN20399236].
In new sales, Roche Holding AG sold $16 billion in
debt this week, the largest dollar-denominated U.S. corporate
bond ever, according to Thomson Reuters data.
Month-to-date, investment-grade companies have sold over
$48 billion in corporate bonds through Thursday, plus nearly
$17 billion in FDIC-backed debt, according to Thomson Reuters
data. That compares with about $51 billion in corporate bond
sales in February of last year.
(Reporting by Walden Siew and Dena Aubin)
((walden.siew@thomsonreuters.com; +1-646-223-6333; Reuters
Messaging: walden.siew.reuters.com@reuters.net))
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Keywords: MARKETS USCORPBONDS

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