UPDATE: New-Issue Floodgates Reopen In Corporate Bond Market

The supply floodgates in the corporate bond market reopened Monday, after a brief drought caused by concern over the economic recovery in the U.S. and, before that, sovereign debt problems in Europe.

A total of 10 borrowers have lined up in the primary market, offering close to $12 billion in new supply, and more are expected soon as companies seeking financing are eager to lock in lower interest rates while they can. Syndicate desks in New York said they expect $25 billion to $30 billion in new issuance this week.

"In many ways, it's not a bad time to lock in debt if you're an issuer," according to Lawrence Glazer, managing partner at Mayflower Advisors LLC in Boston, which oversees $600 million in assets. "Borrowing costs are low while spreads are narrowing. And tremendous inflows remain on top of what are historically low Treasury yields."

Jim Merli, head of the fixed-income syndicate for the Americas at Barclays Capital, said a combination of factors was behind the increase in corporate supply, including an encouraging payrolls report Friday and an easing of overseas debt default concerns.

"Perhaps more important than putting earnings season behind us is the improved backdrop tone to the marketplace," Merli said, noting that Greece's success in selling a EUR5 billion 10-year bond late Thursday removed a bit of overhang in terms of investor concern.

"It's been a very busy day, and we expect that it will be a very busy week as better markets beget more supply," he added.

Glazer noted it's a rare occasion when lower borrowing costs coincide with robust investor demand. He added that investors unsatisfied with what they earn in the Treasurys market are moving into the high-end corporate market, where higher yields are available.

Supply got off to a booming start earlier this year, with volume close to $80 billion in January. But issuers and investors were then tripped up by overseas debt default worries and some disappointing domestic economic data, and volume dropped to $47 billion in February, according to data provider Dealogic.

Last March, borrowers flocked to the market, selling $135.2 billion of investment-grade bonds, the most high-grade debt in a single month since 1995, according to Dealogic.

Investors have also increased buying in the secondary market. Average daily trade volume in the cash investment-grade market was $13.4 billion last week, up 9.3% from the last week of February, according to MarketAxess.

The largest offering Monday was a $3 billion, three-part issue from DirecTV Holdings. That issue includes five-, 10- and 30-year parts. The $1.3 billion 10-year slice was launched with a risk premium of 150 basis points, or 1.5 percentage points, over Treasurys. Net proceeds from the offering will be used for general corporate purposes, which may include repayment of the company's Term C Loan issued under its senior secured credit facility, according to the deal's prospectus.

Bank of America (BAC) was selling the second-largest deal on offer, a $2.5 billion five-year note that was launched with a risk premium of 215 basis points over Treasurys.

Ameriprise Financial Inc. (AMP), Hasbro Inc. (HAS) and BNP Paribas (BNP.FR) were also among companies offering debt deals on Monday.

In addition to the boost in supply, an improved corporate tone has been reflected in a stronger high-grade derivatives index, as the cost to protect against corporate defaults continues to fall.

The Markit CDX North America Investment Grade derivatives IG13 index was last quoted at 81.8/82.8 basis points, an improvement of 3.2 basis points.

The insurance sector helped to fortify the index, following news that American International Group Inc. (AIG) agreed to sell its international life assurance business, Alico, to MetLife Inc. (MET) for $15.5 billion in cash and stock. The news caused AIG's spreads to rally and trade at their tightest levels since August 2008, according to Markit.

-By Kellie Geressy-Nilsen, Dow Jones Newswires; 212-416-2225; kellie.geressy@dowjones.com

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