CREDIT MARKETS: Strong Day For Corporates, Treasurys
March 30 2011 - 4:56PM
Dow Jones News
The corporate bond market was buoyant Wednesday, supported by a
bullish stock market, and Treasurys had a stellar day after U.S.
jobs data came out short of expectations.
Investment-Grade Bonds
U.S. corporate borrowers flocked to the high-grade new issuance
market, but less so than Tuesday when $7.2 billion was sold. Some
issuers were scrambling to finalize deal terms before the close of
the first quarter and ahead of Friday's closely watched payrolls
data.
Archer Daniels Midland Co. (ADM) had $1.75 billion of debt on
offer, including 10- and 30-year notes. The $750 million 10-year
piece was launched with a risk premium of 95 basis points over
Treasurys while the $1 billion, 30-year tranche was launched at 120
basis points over Treasurys.
The deal includes a covenant that will be triggered if a change
of company control takes place, allowing noteholders to redeem
their securities at a premium of $101 cents on the dollar.
Meanwhile, Aviation Capital Group launched $750 million of
10-year notes that were expected to offer a 6.75% yield. The deal
was more than doubled in size from an originally planned $350
million due to heavy investor demand, according to a person
familiar with the issue.
Smaller deals were also on offer from Analog Devices Inc. (ADI)
with $375 million, Brandywine Operating Co. with $250 million, and
Verisk Analytics Inc. (VRSK) with $450 million.
So far this quarter there have been $274.9 billion of
investment-grade corporate bonds sold, said Dealogic.
In the secondary market, Time Warner Inc. (TWX) bonds were the
most actively traded, according to MarketAxess.
Junk Bonds
There was also a strong pipeline of high-yield debt sales to
match the investment-grade side. Some $90.56 billion has already
been sold this quarter--about $41 million from the highest
quarterly volume on record since 1995, according to Dealogic.
Auto parts maker Visteon Corp. (VC) is planning to sell $500
million of senior unsecured bonds by the end of this week, with
price guidance in the area of 6.75%.
Proceeds from the notes, which mature in 2019, with be used
along with cash on hand to retire Visteon's senior secured term
loan due 2017.
Also in the market is First Data Corp. with a $750 million bond
offering to help it repay term loans.
The eight-year senior secured notes are expected to price at par
with a 7.375% coupon, according to a person familiar with the deal,
at the tight end of earlier price guidance in the area of
7.375-7.625%.
Asset-Backed Securities
Over the next 24 months, more than $100 billion of credit card
ABS is scheduled to mature, with the majority of it due in the
first half of 2012. Consequently, credit card issuers should
"opportunistically issue longer-maturity fixed-rate ABS to lock in
the low interest rates available in the current environment," Wells
Fargo analysts said, noting there is "substantial pent-up demand"
for such deals.
Agency Mortgage-Backed Securities
With moderate origination, agency mortgage backed securities
continued to grind tighter, said Paul Jacob, a mortgage strategist
at Banc of Manhattan Capital. Risk premiums were last quoted at 144
basis points, down from 145 basis points Tuesday.
Municipal Bonds
Prices of top-rated tax-exempt bonds fell, as there has been
some pressure from dealers looking to sell inventory before
quarter-end. According to a benchmark scale from Thomson Reuters
Municipal Market Data, muni prices fell 2 to 4 basis points, with
the most pressure seen in bonds maturing from 2018 to 2031.
There are few new bond sales this week. But the downgrade late
Tuesday of DeKalb County in Georgia by Standard & Poor's, then
withdrawal of its ratings because of the county's "inability to
provide sufficient and consistent information" on its finances,
also weighed on the market.
Treasurys
Treasurys broke the longest losing streak in more than two
decades, with prices rising after weaker U.S. data and as the
government wrapped up its latest round of Treasury note
auctions.
The government had to pay up to find homes for its two-, five-
and seven-year notes this week--but the auctions' passing allowed
bond prices to rise leading into Friday's key nonfarm payrolls
report.
Kevin Walter, head of trading at BNP Paribas in New York, said
that many market participants are reluctant to head into Friday's
employment report low on Treasurys, having been burned in the past
when payrolls gained by less than expected.
Walter said there was buying interest out of Japan Wednesday and
believes Asian investors' interest in Treasurys could pick up even
more next week after their year-end.
In afternoon trading, the 10-year note was up 9/32 to yield
3.452%, and the two-year was up 1/32 to yield 0.801%.
-By Katy Burne, Dow Jones Newswires; 212-416-3084;
katy.burne@dowjones.com
--Kellie Geressy-Nilsen, Anusha Shrivastava, Kelly Nolan and
Deborah Lynn Blumberg contributed to this article.
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