3rd UPDATE: US High-Grade Bond Sales See Strong Start To 2010
January 05 2010 - 3:58PM
Dow Jones News
Corporate borrowers, led by financial-services firms, jockeyed
Tuesday to tap an accommodating bond market, offering about $24.5
billion in dollar-denominated investment-grade debt even after an
influential fund manager said he planned to become a choosier
buyer.
Lloyds TSB Bank was pitching the largest deal of the day, $5
billion in five- and 10-year notes. Closely following were General
Electric Capital Corp., the finance arm of General Electric Co.
(GE), and the German development agency KfW, each marketing $4
billion deals. Other issuers included Barclays Bank, Deutsche Bank,
and Motiva Enterprises. Dexia Credit Local was offering $4.5
billion in government-backed notes.
Should every deal sell by the end of Tuesday, as expected, the
daily tally will be the second-largest on record, just shy of $27.7
billion sold on Feb. 18, 2009, according to Dealogic.
"Everyone wants to borrow money right now," said Greg Habeeb,
head of taxable fixed income at Calvert Asset Management in
Bethesda, Md. "They're fighting over each other to get it
done."
Some investment managers, however, are leery of the rally, which
began last year, when overall investment-grade bond sales exceeded
$1 trillion for the first time. The skeptics wonder if new bonds
offer enough compensation to cover investors' risk should the
economic recovery be more sluggish than expected.
Paul McCulley, who runs the short-term bond desk at Pacific
Investment Management Co., or Pimco, the world's largest bond fund,
recently said his firm was "becoming a bit more cautious than we
have been" with corporate bonds. He said carefully selected
high-quality bonds from banks, health-care companies and utilities
offer value.
Financial firms are particularly eager to take advantage of low
Treasury yields before they move higher, said Charles Sanford,
managing director at Babson Capital Management. The interest rate
that companies must pay on bonds is tied to Treasury bond
yields.
Sanford added that banks also want to establish the ability to
issue corporate debt without government guarantees. Many relied on
guaranteed notes in 2009, when investors were particularly worried
about the health of financial institutions.
Skeptics aside, investors seem eager to accommodate borrowers.
One measure of that is a benchmark high-grade credit derivatives
index, a barometer of investor sentiment toward credit, which has
improved to its best showing in two years.
The Markit CDX North American Investment Grade index, which
tracks the cost of default insurance on a basket of North American
investment-grade companies, fell to 81 basis points Tuesday
afternoon. The index last closed at 81 basis points on Jan. 2,
2008, according to Markit, a data provider.
January is often a busy month for bond sales, as companies
address funding needs after the holidays and before their
fourth-quarter earnings reports, Bank of America Merrill Lynch
analysts said in a note.
They estimated that this month's tally will be between $75
billion and $85 billion, with more financial bonds coming without
government guarantees. That would be less than the total in January
2009, when companies issued $123 billion in dollar-denominated
debt, according to Dealogic.
That is roughly in line with forecasts for a slower year in
corporate bond markets this year. Barclays analysts recently
estimated that new high-grade bond sales would drop about 40% from
2009's record of $1.06 trillion.
-By Romy Varghese, Dow Jones Newswires; 215-656-8263;
romy.varghese@dowjones.com
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