Corporate-Bond Market Absorbs $11.5 Billion, Ignores Greece
09 February 2012 - 9:50AM
Dow Jones News
Seven issuers managed to stuff $11.5 billion of high-grade
corporate bonds into the new-issue market Wednesday despite a
volatile backdrop informed by continued delays in the resolution of
Greece's debt crisis.
At the top of the calendar were two $3 billion, multitranche
deals offered by AT&T Inc. (T) and Freeport-McMoRan Copper
& Gold (FCX). Among banks, Wells Fargo & Co. and HSBC
priced $2 billion and $1.5 billion of three-year notes,
respectively.
While trading in the secondary market was generally mixed,
appetite for new-issuance remained upbeat as investors show a
preference towards liquid bonds.
Enterprise Products Operating even enlarged its offering of
30-year bonds to $750 million and then priced them without a
concession.
Usually a new-issue offers investors a concession--or some extra
yield--to entice buyers. But these bonds were priced to yield
4.897%, or 175 basis points over Treasurys, representing a 15 basis
point premium, or negative concession, to comparable outstanding
bonds due 2041.
"People are willing to pay up if they are able to get bonds," a
banker at one of the lead underwriters said, referring to demand as
overwhelming. "If they try to buy them in the secondary, in the
size that a lot of people want, they would drive the market a lot
tighter than where it's trading."
The AT&T bonds were priced with spreads of 55, 80, and 105
basis points on three-, five-, and 10-year bonds. Pricing on each
was on the narrower side of earlier guidance.
The Freeport-McMoRan deal also featured three-, five-, and
10-year bonds, sold at spreads of 110, 135, and 160 basis points.
Their pricing too was slightly better than earlier guidance.
Tom Murphy, portfolio manager at Columbia Management, in
Minneapolis, said it is astounding how much demand there has been
for corporate bonds in recent weeks even with the European crisis
continuing to flare up.
"Six weeks ago, everyone hated everything," he said. "But now,
people have a new risk-budget, or a new time horizon around their
new risk-budget."
The corporate bond market didn't continue to rally Wednesday,
nor have overall prices moved much this week, but the fact that
trading is sideways rather than selling off is considered
significant as reports of further delays in Greece dominate
economic headlines.
"We could be a couple of days from a Greek default, yet the
market is rallying," Murphy said. "If this was happening six months
ago, we'd be at DEFCON 1."
Markit's CDX North America Investment Grade Index, a measure of
health in the corporate bond market, recovered from earlier
deterioration and had improved 0.6% as of 4:35 pm EST. It now
stands at 94.4 basis points--among the best levels since July.
Jody Lurie, credit analyst at Janney Capital Markets, said gloom
and doom headlines from Europe have become "the new normal." For
better or for worse, she said, investors are unfazed by the latest
developments.
"It could definitely be naive," Lurie added. "If something
definitive happens, then we'd see some real reaction. But right now
we're in this limbo state and investors and issuers are both taking
advantage of it."
The seven issuers in Wednesday's market sold $11.5 billion of
new debt. As of Wednesday, markets in February had already absorbed
$31.6 billion--more than half the volume in all of February 2011,
according to Dealogic.
Wells Fargo's three-year notes priced at 100 basis points over
Treasurys to yield 1.347%, and HSBC's three-year notes priced at a
210 basis point spread to yield 2.449%.
Elsewhere, Aflac Inc. (AFL) sold $750 million in a two-year deal
featuring five- and 10-year bonds. They were priced at 185 basis
points and 205 basis points over Treasurys, respectively, yielding
2.669% and 4.022%.
BMC Software Inc. (BMC) also sold $500 million of 10-year bonds
at 235 basis points over Treasurys, yielding 4.316%.
-By Patrick McGee, Dow Jones Newswires; 212-416-2382;
patrick.mcgee@dowjones.com
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