UPDATE:Banks Are Driving Record Start In High-Grade Bond Sales
13 Gennaio 2010 - 10:09PM
Dow Jones News
Financial firms, particularly foreign banks, are dominating
sales of new highly rated corporate bonds as they tap investor
demand and attractive financing costs to refinance
government-guaranteed debt, said several market observers.
So far this year, which is off to a record start, financial
firms have sold 70% of U.S.-marketed investment-grade bonds, data
provider Dealogic said. They accounted for only 45% over the same
period last year.
The reason for the rush is clear: About $260 billion of
government-supported debt from banks in Europe, Asia, and Australia
will mature in 2010, estimated Guy LeBas, chief fixed-income
strategist at Janney Montgomery Scott. "Most are eager to take
advantage of good market conditions early in the new year" to
refinance, he said.
This week, UBS AG (UBS), Deutsche Bank AG (DB, DBK.XE), Bank of
Tokyo-Mitsubishi and Banco Santander SA (STD, SAN.MC) have offered
bond deals. Since the start of the year, companies have sold almost
$50 billion worth of investment-grade bonds and over $4 billion in
high-yield debt--each the biggest amount on record for that period,
according to Dealogic.
Meanwhile, industrial companies aren't expected to sell as much
debt as last year, when they propelled the total investment-grade
new issuance to more than $1 trillion for the first time ever.
Financial firms historically had dominated sales of new
corporate bonds until the credit crisis sparked investor wariness.
With markets improving and investors eager for high-quality bonds
yielding more than Treasurys, financials are again coming to the
fore.
"The tendency of financials is to issue a larger percentage of
their annual funding needs during the first four to five months of
the year, assuming market conditions are favorable," said Victor
Forte, head of corporate bond syndicate at RBS Securities. "2009
was an anomaly."
Still, some say the pace of new financial bonds will slow as
constrained lending reduces the need for the funds.
"The year started off with a bang," said Mirko Mikelic,
portfolio manager at Fifth Third Asset Management. "It'll tail off
in the middle of the year."
J.P. Morgan analysts wrote in a recent note that they expected
sales to drop off this month, and suggest financial issuers are
simply taking advantage of the recent drop in risk premiums.
"Financials spreads have rallied strongly," they wrote. "This is
contributing to the preponderance of financial issuance so far this
year."
The rally in financial spreads comes as investors search for the
best yields in the investment-grade market; financial bonds still
offer about 86 basis points more in yield in comparison to
industrial debt, according to a recent Barclays Capital report.
Meanwhile, new deals are swamped with orders, and so they can
offer lower returns to buyers. New bonds' concessions, or the
additional risk premium to existing bonds, are low, at just 11
basis points this month, estimated Bank of America Merrill Lynch
analysts in a recent note.
-By Romy Varghese, Dow Jones Newswires; 215-656-8263;
romy.varghese@dowjones.com
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