NEW YORK (Dow Jones)--Credit markets received a boost Thursday after Greek lawmakers approved the implementation of a five-year austerity plan, clearing the way for new bailout funds and averting a Greek default in the short term.
The benchmark 10-year Treasury yield peaked to a seven-week high of 3.21% as the Greek yes vote and optimistic U.S. economic data prompted some investors to move out of safe-haven Treasurys. Thursday also marked the end of the Federal Reserve's $600 billion bond-buying program -- a second round of quantitative easing, known as QE2 -- that aimed to push down long-term interest rates.
Still, issuance in the high-grade and high-yield primary markets remained quiet ahead of the long holiday weekend.
Investment-Grade Corporates
No new deals were offered in the investment grade market and trading was moderate.
The Markit North American Investment Grade index was last quoted improved by 2.8 basis points to 91.7 basis points, having begun the week at 100.5 basis points. The index is linked to 125 companies and used to speculate on creditworthiness or hedge against losses. An increase in the index signals a dip in investor confidence while a lower number suggests an increase.
Junk Bonds
Bonds issued by paper manufacturer NewPage Corp. traded higher Thursday as the company met its deadline to make a coupon payment of $100.7 million on its first-lien notes due 2014.
NewPage's 11.375% notes due Dec. 31, 2014, were quoted up 1 cent to 93.125 cents on the dollar on 23 trades, according to MarketAxess, an online trading platform. Its 10% notes due May 1, 2012, were quoted up 2.45 cents on the dollar to 30 cents on the dollar on three trades.
Moody's rates the notes B2 and Standard & Poor's rates them CCC+. NewPage is owned by Cerberus Capital Management LP.
Overall, the tone in the high-yield market was positive. The high-yield derivative index, the Markit CDX.NA.HY was quoted at 101.5/101.7 cents on the dollar, up by 0.8% on the day.
Commercial Paper
The U.S. commercial paper market fell sharply on an unadjusted basis in the week ended Wednesday, according to Federal Reserve data released Thursday, with most of the decline coming in lending to banks and other financial institutions.
In the week ended Wednesday, the amount of commercial paper outstanding shrank by $24 billion. Commercial paper comprises loans of up to 270 days.
While the amount of commercial paper rose by $3.2 billion on a seasonally adjusted basis, the unadjusted figure is a number many industry participants prefer to follow.
Lending to the U.S. operations of foreign banks declined by $9 billion and lending to foreign banks directly fell by $4.4 billion. U.S. money market funds, which are a major investor in commercial paper, have been shying away from debt from euro zone banks--particularly smaller European banks--given the tumult in Greece.
Total commercial paper outstanding now stands at $1.231 trillion on a seasonally adjusted basis and $1.106 trillion on an unadjusted basis. At its peak in July 2007, the market was over $2 trillion in size on a seasonally adjusted basis.
Municipal Bonds
Municipal bonds finished weaker Thursday, falling in sympathy with Treasurys, whose prices have dropped the past several days.
Prices of top-rated municipal bonds maturing in 2016 and beyond fell 3 to 5 basis points, according to a benchmark scale from Thomson Reuters Municipal Market Data. The most weakness was in bonds maturing in 2019 through 2041.
The softness comes as the muni market is also digesting a slew of prior bond sales. Although overall issuance is still running at about half last year's levels, June is poised to be the biggest issuance month so far this year, with more than $23 billion in new bond sales, according to Thomson Reuters.
Some balances remain on higher-grade competitive deals from last week, like the $997 million Georgia general obligation loan, an MMD analyst said. Secondary trading of that deal this week has been at yields as much as 14 basis points higher than original issuance levels, Janney Montgomery Scott's Alan Schankel wrote in note Thursday. Yields move in the opposite direction of price.
Despite the negative overtone in the secondary market, primary issuance this week has been received well, said Gary Pollack, head of fixed income and research at Deutsche Bank Private Wealth Management. He bought bonds from two of the week's larger issues, a $975 million New York state tobacco settlement bond and a $900 million issue from Florida insurer, Citizens Property Insurance Corp.
-By Nicole Hong, Dow Jones Newswires; 212-416-3760; nicole.hong@dowjones.com
--Kellie Geressy-Nilsen, Anusha Shrivastava and Kelly Nolan contributed to this report.
