Verizon's Bond Deal Can't Keep Dow Afloat
Stocks edged lower today, with the Dow Jones Industrial Average falling 0.11% and the S&P 500 down 0.28% near the end of trading. The big economic news was a 31,000-person drop in unemployment claims to 292,000 last week, which would be the first reading below 300,000 since 2006. However, the Department of Labor said technical glitches caused some data to be delayed, and with a holiday included during the week, we should take this data point with a huge grain of salt. The employment picture is improving -- just not as quickly as today's data shows.
Helping the Dow tremendously today is telecom stocks, led by Verizon's 2% rise. The company sold $49 billion in bonds yesterday to help complete its acquisition of the 45% of Verizon Wirless it doesn't already own, and traders responded by promptly bidding them higher. The bonds were sold for a 5.192% yield for 10-year notes, and they promptly fell to 4.746% in trading today, meaning a huge windfall for buyers of the bonds.
The good news for Verizon and its competitor AT&T , which is up 1.3% on the Verizon news, is that borrowing costs are even lower than expected. The bad news is that the lower yield today doesn't translate to lower interest payments on the $49 billion in bonds already issued.
Verizon is closer to owning all of Verizon Wireless, which will swing earnings even more heavily toward wireless -- a good thing, given that it's Verizon's cash cow. The risk is that high debt will drown the company, but considering Wall Street's appetite for Verizon's debt, that doesn't appear to be a near-term concern. This may even make AT&T more ambitious about going on an acquisition spree, because it would also be able to benefit from the low rates Verizon's bonds are now trading for. By the looks of it, Wall Street can't get enough of the wireless industry right now.
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The article Verizon's Bond Deal Can't Keep Dow Afloat originally appeared on Fool.com.
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