Amazon's Opening Salvo in Grocery Price War Hits Bond Market

  • Yield on BofA index of food companies climbs to one-month high
  • U.S. grocers Fresh Market, Albertsons among bonds hardest hit

Amazon to Slash Prices, Offer Services at Whole Foods Inc.’s acquisition of Whole Foods Market Inc. isn’t just slashing prices on organic avocados. It’s also making it more expensive for some of the grocery store chain’s rivals to borrow.

The online retailing giant’s move to make it cheaper to shop at newly acquired Whole Foods sent bond prices for some U.S. food retailers to record lows. The yield on a Bank of America Merrill Lynch Index of U.S. grocery companies jumped 11 basis points last week to the highest in more than a month.

The moves underscore both Amazon’s massive influence on retail markets and the fragility of a sector known for razor-thin profit margins. The company cut prices by as much as 43 percent on a broad cross section of Whole Foods groceries Monday, its first day as the owner of the chain following the $13.7 billion acquisition.

Here are some of the bonds that were worst hit by the news:

  • Fresh Market Inc.’s $800 million of bonds due 2023 slumped 1.125 cents on the dollar Monday to a record low of 76.75 cents
  • The cost of protecting Albertsons Cos.’s debt against default for five years jumped 40 bps to 538.7, the highest since October 2014, credit default swaps show
  • Tops Friendly Markets’s $560 million of bonds due 2022 dropped 7.75 cents on the dollar last week to a record low of 67.5 cents
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