Window For U.S. Corporate-Bond Issuance Swings Open

13th Jul 2010 20:39

By Katy Burne and Chris Dieterich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The U.S. corporate-bond market saw a rush of new supply Tuesday after second-quarter earnings season began on a positive note and issuers that aren't subject to an earnings blackout took advantage of ultra-low spreads. "The summer doldrums have been interrupted," said Matt Toms, head of U.S. public fixed income at ING Investment Management. "We're not in August just yet so there is still some life in the market, and this is opportunistic issuance by companies who are seeing all-in yields are attractive." The 10-year Treasury note's yield was as low as 3.021% intraday and the 30-year bond's yield was as low as 4.018%, although they pushed above those levels through the day. Deal flow was somewhat sovereign tinged, with the Province of Nova Scotia coming to market with a $750 million deal and Qatari Diar and Bermuda both announcing deals for later this week. Among corporates, Target Corp. (TGT) priced $1 billion in 10-year, 3.875% notes at 99.713 to yield 3.91%--a spread of 0.80 percentage point over comparable Treasurys. The discount retailer releases its quarterly earnings a month later than other companies to capture sales over the entire quarter, so it isn't currently subject to the earnings blackout that typically causes issuance to slow around this time of year. Also in the market were Agilent Technologies Inc. (A), which launched $250 million of three-year bonds at 1.50 percentage points and a $500 million tranche of 10-years at 1.95 percentage points; as well as energy company Black Hills Corp. (BKH), which priced $200 million in 10-year notes at par to yield 5.875%, or a spread of 2.72 percentage points. Among so-called Yankee deals--U.S. dollar-denominated bonds sold by foreign issuers--Mexico's state-owned oil company Petroleos Mexicanos (PEM.YY) sold $2 billion in 10.5-year bonds at 2.5 percentage points; and South Korea's Woori Bank (WF) priced $600 million of 5.5-year notes at 3.0 percentage points. Japan's Sumitomo Mitsui Banking Corp. announced a benchmark-sized private placement that is likely to price Tuesday, along with a benchmark issue from PTTEP Australia International Finance Pty Ltd. (CGR.YY). The jump in Yankee bonds is best seen as a continuation of increasing issuance from foreign companies over the past 18 months, said Peter Aherne, managing director and head of capital markets and syndicate at Citigroup. He attributed the trend to more volatile markets abroad and their desire to diversify their investor base. Also helping to boost sentiment was the success of Greece's first debt auction since it was bailed out in May. The nation raised EUR1.625 of 26-week Treasury bills at 4.65%, lower than the rate on its emergency loans. Victor Forte, head of syndication in the Americas at Royal Bank of Scotland, said corporate bonds, compared to other asset classes, are virtually the only game in town for institutions looking for a safe place to put their money, with equity markets improving from their lows but still choppy. "Cash continues to build during times of decreased new-issue supply," Forte said. "New-issue corporate bonds are one of the few places to consistently put larger blocks of money to work that investors feel good about." Hertz Vehicle Financing (HTZ) brought a $576 million auto-sector asset-backed bond, becoming the latest issuer of consumer loan-backed bonds hurrying to tap the market before the summer lull sets in. But Forte said non-financial supply in general would remain patchy. "We expect that, even with lower rates, non-financial supply will feel relatively light compared to 2009. A lot of prefunding has already taken place and negative carry is a concern for some issuers who will feel less urgency. However, some may find it difficult to turn down these attractive coupons," he said. -By Katy Burne, Dow Jones Newswires; 212-416-3084; [email protected] (END) Dow Jones Newswires July 13, 2010 15:39 ET (19:39 GMT)