UPDATE: Busy Day In US Corporate Debt, Boosted By China News

21st Jun 2010 20:47

(Adds background on bond market activity this year.) By Katy Burne and Chris Dieterich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The U.S. investment-grade corporate debt market got off to a busy start Monday, with eight deals coming to market, led by the financial sector and including two large dollar-denominated issues from Asia. The key driver behind the return to a more bullish sentiment was China's decision to allow more flexibility in the trading of its currency, the yuan. The pickup in issuance and the improved sentiment follow several weeks of jitters, prompted by concerns the euro zone's debt problems could spread and hurt the global recovery. "The China news was overwhelming--the market was looking for something positive to rally on, even it if wasn't the solution to what the market went down on," said Sandy Ewing, founding principal at Chapdelaine Credit Partners. "In this environment all the bearishness will continue to create pent-up real-money [investor] demand." Three issuers were in the market Monday with billion-dollar deals: the Export-Import Bank of Korea, Bank of Montreal (BMO) and General Electric Capital Corp., the financing arm of General Electric (GE). Shell International Finance and the bank HSBC were also preparing what they described as benchmark offerings, which usually means at least $1 billion in size. High-grade issuance has accelerated in recent weeks in the absence of market-shuttering news from Europe. Last week's $21.5 billion in volume was the highest since mid-March. Financials have been particularly active, accounting for some $9.8 billion of last week's total. As of Friday, financial firms had issued $162.2 billion in debt so far in 2010, compared with $208.1 billion at this point in 2009. [That excludes debt backed by the government's Temporary Liquidity Guarantee Program. With that protection, financial firms sold $456 billion by this time last year.]. Even if the recent spurt of issuance were to continue, 2010 is unlikely to match 2009, a record year bolstered by government-guaranteed debt sales. Barclays Capital expects investment-grade issuance to fall 20% from the $1 trillion sold in 2009. At the end of last week, issuance this year was less than half of the running total for 2009, not counting government-insured debt. Volume has declined in part because financial institutions are holding onto cash and increasing deposits, so have had less need to raise capital in the bond market. Additionally, uncertainty about financial regulatory change and fears of a spreading European sovereign-debt crisis have led investors to demand higher yields on bonds, he said. The average risk premium for investment-grade corporate debt--the extra yield investors demand to buy company bonds rather than less-risky Treasury securities--stood at 2.03 percentage points on Monday. That was nearly half a percentage point more than two-year low reached at the end of April, according to Standard & Poor's. Two of the new deals have already priced: a $500 million sale for Citic Bank International Ltd., the Hong Kong unit of China Citic Bank Corp. (0.998.HK); and the offering of $1.25 billion in 10-year notes from the Export-Import Bank of Korea, known by the acronym Kexim. Citic sold 10-year subordinated bonds at 3.625 percentage points over comparable Treasurys--at the tight end of guidance set at 3.625 to 3.75 percentage points. The sale was led by Barclays Capital and HSBC, with Citic Securities as the co-manager. The Chinese bank has not sold dollar-denominated debt since 2007, according to Dealogic; that was before the liquidity crisis that caused U.S. capital markets to freeze up. Kexim sold its offering of senior unsecured notes through Bank of America, BNP Paribas, Citigroup, Deutsche and Royal Bank of Scotland. The deal priced at 1.98 percentage points over Treasurys, at the tighter end of guidance between 1.98 and 2.02 percentage points. The Korean agency was last in the U.S. market at the beginning of March, when it sold $1 billion of bonds, Dealogic said. Meanwhile, Bank of Montreal and General Electric Capital Corp., the financing arm of General Electric, each brought $1 billion deals, with three-year and five-year tenors, respectively. Bookrunners for BMO's offering, which is expected to price about 0.95 to 0.98 percentage points over Treasurys, are Bank of America Merrill Lynch, Barclays Capital, Morgan Stanley and BMO itself. GE Capital's offering, expected to price around 150 basis points over Treasurys, is being led by Bank of America, Barclays Capital, Morgan Stanley and Deutsche Bank. Still on deck is a two-part benchmark five-year offering from Shell International Finance, underwritten by Bank of America and HSBC; and another benchmark issue of five-year senior notes for HSBC Bank, which the bank is selling itself. Health-care product group Covidien International Finance is selling three-, five- and 10-year notes via Barclays Capital, Goldman Sachs and Morgan Stanley. Each tranche will be a minimum of $250 million; price guidance is 0.75 percentage points over Treasurys for the three-year note; 0.85 percentage points over Treasurys on the five-year note; and 1 percentage point over Treasurys on the 10-year offering. Also in the market is a $300 million offering of 10-year notes for insurer Genworth Financial (GNW) via Bank of America, Credit Suisse, Goldman Sachs and UBS. -By Katy Burne and Chris Dieterich, Dow Jones Newswires; 212-416-3084, 212-416-2611; [email protected] (END) Dow Jones Newswires June 21, 2010 15:47 ET (19:47 GMT)