Record Pace of Bond Offerings Cools as IMF Warns
Brendan Smialowski/Bloomberg
Fed policy makers cut their estimate for U.S. growth this year to between 2.2 percent and 2.7 percent, down from a projection of 2.5 percent to 2.9 percent in November.
Fed policy makers cut their estimate for U.S. growth this year to between 2.2 percent and 2.7 percent, down from a projection of 2.5 percent to 2.9 percent in November. Photographer: Brendan Smialowski/Bloomberg
Corporate bond sales worldwide have
slowed from their record pace in the middle of the month as
everyone from the Federal Reserve to the International Monetary
Fund cuts forecasts for economic growth.
General Electric Co. (GE), SABMiller Plc (SAB) and Bayerische Motoren
Werke AG (BMW) led $287.8 billion of offerings this month, the slowest
start to a year since 2008, Bloomberg data show. As recently as
two weeks ago sales totaled $187.3 billion, the fastest pace for
a January on record. Now, sales from the U.S. to Europe to Asia
have declined 14 percent from the $335.4 billion raised in the
same period a year earlier.
Issuance is dwindling after the IMF lowered its estimate
for global growth this year to 3.3 percent on Jan. 24, from a
September forecast of 4 percent, citing mounting evidence
European debt turmoil will cause damage beyond the continent.
Banks from the common currency zone have tapped record amounts
of emergency central bank funding, as an alternative to their
sales of bonds in the U.S., where total offerings have fallen 28
percent from a year ago.
“The big change is the lack of access to the market for
the European banks, which have been non-existent so far,” said
Justin D’Ercole, head of investment-grade syndicate for the
Americas at Barclays Capital in New York in a telephone
interview.
Europe Sales Climb
The extra yield investors demand to own investment-grade
corporate bonds from the U.S. to Europe to Asia shrank to 236
basis points, or 2.36 percentage points, according to Bank of
America Merrill Lynch index data. While that’s the narrowest in
almost three months, it’s still 76 basis points wider than a
year ago.
In Europe, bond sales have climbed 14 percent this month to
65.4 billion euros in both the region’s common currency and
British pounds, Bloomberg data show. Spreads on company debt
there have contracted 51 basis points this year to 260 basis
points, Bank of America Merrill Lynch’s EMU Corporate Index
shows.
“There will probably be a bit of an attitude of ‘print
while you can’,” said Alison Murdoch, a credit strategist at
Ria Capital in Edinburgh. “Companies can’t assume that markets
will remain functional.”
Greek Talks
Elsewhere in credit markets, the cost of insuring against a
European sovereign default fell to the lowest in almost two
months on speculation talks to restructure Greece’s debt are
close to a conclusion. Mortgage bonds rallied for a second day
yesterday after Fed Chairman Ben S. Bernanke said the central
bank is considering more asset purchases to boost growth.
The Markit iTraxx SovX Western Europe Index of credit-
default swaps on 15 governments fell two basis points to 320.5
as of 11:36 a.m. in London, signaling an improvement in
perceptions of credit quality.
Greece its negotiating a voluntary debt exchange with
bondholders to stave off a default as it faces 14.5 billion
euros ($19 billion) of bonds coming due in March. European Union
Economic and Monetary Affairs Commissioner Olli Rehn said in
Davos, Switzerland that he expects an agreement will be reached
“if not today, then over the weekend.”
Credit-default swaps pay the buyer face value if a borrower
fails to meet its obligations, less the value of the defaulted
debt. A basis point equals $1,000 annually on a contract
protecting $10 million of debt.
Bonds of Charlotte, North Carolina-based Bank of America
Corp. were the most actively traded U.S. corporate securities by
dealers yesterday, with 178 trades of $1 million or more,
according to Trace, the bond-price reporting system of the
Financial Industry Regulatory Authority.
Fannie Mae
Mortgage bonds rallied after Bernanke’s signal he may
consider more bond buys after the central bank extended its
outlook for low rates.
Yields (MTGEFNCL) on government-sponsored Fannie Mae’s current-coupon
30-year fixed-rate mortgage securities, or those trading closest
to face value, decreased four basis points to 78 basis points
more than 10-year U.S. government debt, the lowest in more than
10 months, Bloomberg data show. Yields fell by the most in three
months to a record 2.72 percent.
The Standard Poor’s/LSTA U.S. Leveraged Loan 100 index
rose for an eighth day to the highest since Aug. 3 yesterday,
climbing 0.29 cent to 93.03 cents on the dollar. The measure,
which tracks the 100 largest dollar-denominated first-lien
leveraged loans, has climbed from 86.96 on Oct. 5, which was the
lowest level since December 2009.
Leveraged loans and high-yield bonds are rated below Baa3
by Moody’s Investors Service and lower than BBB- by SP.
Emerging Markets
In emerging markets, relative yields were unchanged at a
seven-week low of 407 basis points, according to JPMorgan Chase
Co.’s EMBI Global index. Spreads have fallen from 490 on Oct.
4.
Company bond sales worldwide through yesterday are the
least since $205.8 billion was issued during the same span in
2008, Bloomberg data show. U.S. offerings fell to $103.9 billion
this year from $144.9 billion through Jan. 26, 2011.
Fairfield, Connecticut-based General Electric, the world’s
largest maker of jet engines, has issued $7.17 billion of debt
in currencies including the U.S. dollar, British pound and Swiss
franc, Bloomberg data show. SABMiller issued $7 billion of notes
in the largest U.S. offering in almost two years.
Brisk Sales
Company bond sales remain brisk in Europe. Italian oil
group Eni SpA was the latest company to raise money today, while
Munich-based BMW led issuance this year with $5.22 billion of
bonds.
Utrecht, Netherlands-based Rabobank Nederland (RABO) issued $2.5
billion of five-year notes on Jan. 11 while KfW, the German
state-owned development lender has raised $8.75 billion in the
only U.S. offerings this year by European financial
institutions. Foreign debt issued in the U.S. market is known as
Yankee bonds.
“The difference in supply in 2012 compared with 2011 is
that a year ago there was a very strong demand for Yankee
financial issuers, and there was a lot of issuance to meet that
demand,” John Hines, Charlotte, North Carolina-based global
head of investment-grade syndicate at Wells Fargo Co. said in
a telephone interview.
The European Central Bank on Dec. 21 lent financial
institutions a record 489 billion euros of three-year loans, in
a so-called longer-term refinancing operation.
‘Considerable’ Needs
“Financials clearly have considerable funding requirements
but the ECB’s longer-term refinancing operation helps
significantly there,” Ria Capital’s Murdoch said.
The World Bank reduced its global growth forecast for this
year to 2.5 percent, from a June estimate of 3.6 percent, the
Washington-based institution said on Jan. 18. It warned that the
crisis in Europe and slower growth in developing economies could
crimp the world economy further.
Fed policy makers cut their estimate for U.S. growth this
year to between 2.2 percent and 2.7 percent, down from a
projection of 2.5 percent to 2.9 percent in November. The
world’s largest economy has been “expanding moderately,
notwithstanding some slowing in global growth,” they said in a
statement released after their meeting ended Jan. 25.
“We’re seeing a maturation of the Fed’s view on the state
of the global economy,” said Adrian Miller, a fixed-income
strategist at GMP Securities LLC in New York. “There’s been a
firming up in their opinion that growth is indeed slowing.”
To contact the reporter on this story:
Tim Catts in New York at
tcatts1@bloomberg.net.
To contact the editor responsible for this story:
Alan Goldstein at
agoldstein5@bloomberg.net.
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Article source: http://www.bloomberg.com/news/2012-01-27/record-pace-of-bond-offerings-cools-as-imf-warns-credit-markets.html
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