Bank Bond Trading Calm on Stormy Monday
While the Treasury market had one of its most volatile days on Monday, bank bonds held steady.
For example, the yield on bell-wether Citicorp bonds due in August 1999 did not budge from 9.90% on Monday, even though the yield on 10-year Treasury bonds tumbled 14 basis points early in the day before recovering to 7.83% at the close. The market was generally calm on Tuesday.
Bankers hoping for an opportunity to raise debt at artificially low rates were disappointed. As a result, bond investors should not expect to see new debt issues pegged to instability in the Soviet Union.
|Flight to Quality'
"There was a flight to quality," said Neil Crowder, senior analyst at IDS Financial Services. But bank bonds were not affected, he said.
In fact, William Downes, a vice president at Keefe, Bruyette & Woods Inc., said bank bond trading was virtually nonexistent on Monday.
"When [Treasuries] rally like this, no one bids for any [bank bonds]," said Mr. Downes. That is because investors do not expect the rally to last, he said.
Uncertainty Could Raise Yields
He said there might even be an increase in bank bond yields soon if uncertainty in the markets remains.
If the Federal Reserve cuts the discount rate, however, bank bond yields could fall, spurring spur some new issues. "You might see some people interested in [refinancing higher priced debt]," said Katherine Rossow, senior analyst at Moody's Investors Service Inc. "But the market probably won't absorb huge amounts of debt from banks. They still see banks as somewhat risky paper."