Corporate bonds

PG&E’s corporate bonds take a hit as Dixie Fire rages

The Dixie Fire in northern California, already the sixth-largest in state history, scorched a small town overnight and prompted area evacuationsweeks after Pacific Gas and Electric said its equipment may have started the fire.

The three-week blaze comes during extreme weather and a historic drought in the state. Wednesday night the Dixie Fire destroy the historic town of Greenville in the northern Sierra Nevada, which dates back to the Gold Rush era.

He has already burned more than 320,000 acres and 45 known structures, as damage assessment continues. Dry and windy conditions helped fuel the fast-moving blaze, which was last reported to be just 35% contained, according to the California Department of Forestry and Fire Protection.

Bonds issued by Pacific Gas and Electric, California’s largest utility, have also taken a boost since the company in mid-July alerted for the first time the California Public Utilities Commission, in a preliminary report, that a blown fuse on one of its utility poles may have started the fire. The investigation into the cause of the fire is continuing.

But since then, PG&E’s PCG,
BB-rated corporate debt came under severe pressure and saw strong trading volumes. Its 5.25% bonds due July 2030 were at the heart of the action, with spreads of around 40 basis points at about 439 basis points above Treasuries, according to data from BondCliq.

PG&E’s stock fell 4.3% on Thursday and has fallen 8.6% in the past five sessions.

Bond spreads are the level at which investors are compensated above a risk-free benchmark, often TMUBMUSD10Y Treasury Bills,
to help account for the risk of default. Wider spreads often indicate nervousness in the market or concerns around a specific company. Overall deviations for the set ICE BofA BB US High Yield Index were last spotted at 241 basis points against Treasuries.

This chart highlights the downward trade pressure on PG&E’s July 2030 bond against its utility peers since mid-July.

PG&E bonds go wild as Dixie Fire grows


PG&E’s global debt was also the most actively traded during this period, according to BondCliq.

A spokesperson for the utility did not immediately respond to a request for comment on the trading action of the bonds or the company’s stock.

Instead, the company provided a link to a previous statement which provides an update on additional measures it will take during the growing threat of wildfires, including an initiative to bury 10,000 miles of power lines in areas most at risk of fire.

Stocks were poised for modest gains on Thursday, with the Dow Jones Industrial Average DJIA,
up 0.6% and the S&P 500 SPX index,
0.4% higher.