26
02/11
US bond offerings spike
Companies and banks are rushing to take advantage of the bond market before yields rise, giving the US market its second-biggest ever day of fundraising.
Bankers said corporate treasurers were keen to get at least some of their planned borrowing done for fear that the record amounts of government borrowing this year will drive down prices, pushing yields higher – and raising companies’ absolute cost of funding even if the premium they pay relative to government debt continues to fall.
On Tuesday, eight companies borrowed a total $24.1bn from US investors, according to Thomson Reuters – second only to $24.6bn on February 18 last year – which was boosted by two massive offerings.
“The good news is that treasurers feel in much better shape than this time last year. The bad news is they believe the funding environment is going to get more difficult further into the year,” said Mark Bamford, head of global fixed income syndicate at Barclays Capital.
“The trick is to do enough funding now to make sure you’re in good shape but without frontloading your borrowing so much that you pay a big negative carry [between low interest on cash deposits and higher borrowing costs].”
Last year, companies issued record amounts of bonds as banks’ reluctance to lend forced them to turn to the market. Investors, scarred by stock market turmoil in the financial crisis, have proven keen to invest in the relative safety of corporate debt, spurring the market rally further.
European markets have been waiting for Wednesay’s Catholic Epiphany holiday to pass but bankers in the region expect their markets to follow the US lead and re-open quickly.
“It can take a lot of pressure off, straight out of the gate, to have got some funding done,” said Fred Zorzi, head of European syndicate at BNP Paribas.
Treasurers were less worried about the likelihood of tighter monetary policy pushing yields higher than that pressure would come from investors worried about the expected glut of government supply, said Mr Zorzi.
Tuesday’s bumper borrowing was led by financial groups, including $4bn-plus bond deals from GE Capital, KfW, Lloyds Banking Group, and Dexia Credit.
“The major trend in the first part of the year will be continued financial supply, in particular non-US borrowers looking to the US market as the most liquid source,” said Jim Probert, head of investment grade syndicate at Bank of America Merrill Lynch.
Banks typically head the list of borrowers in January as they seek to raise funds before they go into market “blackout” before reporting results. This year, their borrowing is expected to be particularly high.
“For financials, the big theme of 2009 was the injection of capital and support by regulators and central banks. One of the big themes of 2010 will be the start of the withdrawal of that support,” said Giles Hutson, co-head of fixed income capital markets in Europe for Morgan Stanley. “Banks have to move away from being supported by the public sector and stand on their own feet, which means they have to issue more unsecured debt.”