Credit awaits Fed guidance
Credit spreads traded in a tight range ahead of the much-anticipated policy announcement from the US Federal Reserve tomorrow.
The Fed is widely expected to begin tapering its quantitative easing programme; in other words, scaling back its bond purchases. There is also considerable uncertainty surrounding the Fed's economic projections, forward rate guidance and the thresholds for unemployment and inflation, so it was little surprise to see spreads move sideways.
However, the day was not without import, and positive corporate news from the US helped sustain Monday's upbeat mood. Microsoft announced a $40bn share buyback programme and increased its dividend by 22% to 28 cents a share.
The US tech giant captured the headlines earlier this month with the acquisition of Nokia's handset business, and is under pressure to reward shareholders. Such a move would normally damage bondholders, but Microsoft is a very strong credit and its CDS are highly illiquid, so there was little movement in its spreads today.
One sector hat has seen considerable volatility is telecoms. Verizon's spreads spiked wider after it agreed to buy the stake in Verizon Wireless that it didn't already own. It financed the acquisition through a massive $49bn new issue launched last week.
Since then the firm's spreads have recovered and are back trading at 66bps - the same level as rival AT&T. Nonetheless, there is no masking the fact that Verizon has underperformed this year, though it is still a strong credit.