Corporate-Bond Issuance Slowing, As Backdrop Remains Favorable

Syndicate desks are expecting corporate-bond issuance to slow down after a robust two days to begin the week, but the market remains stable and investors are prepared to take in new deals.

Monday and Tuesday saw a collective $16.6 billion of investment-grade paper enter the market, including three deals of at least $3 billion each.

One syndicate source said he estimated $15 billion to $20 billion for the week, so there should still be room for a slew of deals to price in the coming days.

"I'm not expecting too much, but the market tone is still good," said another syndicate manager. "It's a very stable backdrop and the deals that priced yesterday have done well in secondary trading, so that's been constructive."

Gilead Sciences (GILD) 3.050% coupon, five-year bonds sold Tuesday at a spread to Treasurys of 215 basis points and are now trading at a spread of 194 basis points, a 21-basis-point improvement, according to MarketAxess. Hewlett-Packard's (HPQ) 4.65% coupon, 10-year bonds sold Tuesday as a spread to Treasurys of 260 basis points and are now trading at a 241-basis-point spread.

Gilead sold $3.7 billion of debt Tuesday, and Hewlett-Packard priced $3 billion.

The Barclays Capital U.S. Credit Index deteriorated one basis point Tuesday to finish at a spread to Treasurys of 216 basis points. The index, which has fluctuated between 185 and 231 basis points over the last three months, has widened nine basis points month to date.

Early indicators suggest the market continues to drift Wednesday: A benchmark index of the U.S. corporate-bond market, Markit's CDX North America Investment-Grade Index, deteriorated a slight 0.5 point overnight, or 0.4%.

But with Treasury rates so low, issuer clients are being told to think about low coupon rates and ignore spreads, said one syndicate manager. There is also a broad feeling that the situation in Europe could turn on a dime and shut off the risk trade, so issuers are encouraged to tap the market now.

One deal has already been marketed for Wednesday: ERP Operating LP is issuing $500 million of 10-year bonds to repay the outstanding balance under its unsecured revolving-credit facility and raise funds for working capital and general corporate purposes.

ERP Operating is a real-estate company which is 95% majority-owned by Equity Residential (EQR), a Maryland real estate investment trust. EQR conducts its property ownership, development and related business operations through ERP Operating.

Lead underwriters on the issue are Bank of America Merrill Lynch, Barclays Capital and Morgan Stanley.

-By Patrick McGee, Dow Jones Newswires; 212-416-2382; patrick.mcgee@dowjones.com

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