Selloff Slams Door On Junk Names

A selloff Thursday in the broader markets has investors in flight-to-safety mode, effectively leaving the bond markets open only to high-grade issuers, bankers and investors say. This makes sense in the context of the acute decoupling between blue-chip and junk names in the secondaries yesterday. “Low beta sovereign performed pretty well,” says Klaus Spielkamp a trader at Bulltick “Colombia was up on the day and I would say Mexico and Brazil was as well, but high-betas suffered and we saw Argentina’s Bodens and Venezuela being hit and trading down two or three points.” A similar story unfolded among corporates. High-grade names like Brazilian banks Bradesco and Itau, as well as Colombian conglomerate Grupo Suramericana found support, while Brazilian beef names like Marfrig and JBS were largely being offered throughout the day. Such spread widening has really shut the door on any junk name that was contemplating a market tap, at least in the short-term. High-grade credits are more likely to lead any true reopening of the market, and could indeed benefit from a US Treasury market that saw the 10-year pierce 2% and the 30-year trade at around 3.4% Thursday. But the nervousness infecting sentiment and the extremely volatile nature of markets these days has left investors more inclined to sit on the sidelines. “The mood is still really bad. [In this market], you would prefer to lower your exposure rather than get into something that may be opportunistic,” Spielkamp adds. Worries about a double dip recession, not to mention the solvency of some European banks and the possible knock-on effects on US financial institutions leaves too many unanswered questions “We are seeing money put to work, but investors are still cautious and selective,” says one banker. Quasi sovereign Panamanian credit Empresas Nacional de Autopista got through the door Thursday following activity in the US high-grade market this week, but its rarity value and structured nature doesn’t necessarily make