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Money flowed into bonds issued by the big six money-center banks, led by Bank of America Corp. and Citigroup Inc., in the past two weeks in a bullish signal from investors ahead of fourth-quarter earnings season.
There’s been more net buying than selling for the selected bonds, as spreads have compressed against 10-year Treasurys.
Bank of America
BAC,
bonds drew in $461 million of net buying, followed by $441.7 million for Citigroup
C,
$278.3 million for Morgan Stanley
MS,
$236.5 million for Goldman Sachs Group Inc.
GS,
$138.5 million for JPMorgan Chase & Co.
JPM,
and $109.5 million for Wells Fargo & Co.
WFC,
according to data from BondCliQ.
JPMorgan drew in the most volume of the group (see chart below).
Bonds from the six largest U.S. banks all drew in more money from investors in the past six weeks.
BondCliQ Media Services
In another bullish sign, the basis-point spreads between the selected bonds from the six banks and the 10-year Treasury
BX:TMUBMUSD10Y
tightened over the past two weeks.
The lower spread, or difference, between basis points paid to bondholders and the yield offered on the 10-year Treasury amounts to a bet by investors that the debt they’re buying is lower risk.
A higher spread would indicate that investors regard a bond as a greater risk compared with Treasurys.
In the case of the bank bonds, investors have been betting in recent weeks that the debt is growing more secure (see chart below).
Spreads between yields of bank bonds and 10-year Treasurys have been falling, in a sign that investors see the big money-center banks’ debt as growing safer.
BondCliQ Media Services
Meanwhile, even as stocks in the big banks rallied in the fourth quarter, equity prices have cooled off in recent days.
Fourth-quarter earnings season for the six banks gets under way on Friday, with updates from JPMorgan Chase, Wells Fargo, Bank of America and Citigroup on tap.
Morgan Stanley and Goldman Sachs will report results on Tuesday.
During the fourth quarter, earnings estimates from analysts fell as dealmaking stalled and economic headwinds persisted.
Also read: JPMorgan, Bank of America lead earnings parade of U.S. largest banks to cap off tough year
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