Ford Bonds Tap Consumer Revival as Nordstrom Sells Notes: Credit Markets
Ford Motor Co. is marketing bonds backed by auto loans at half the relative yield it paid six months ago and Nordstrom Inc. sold notes at its lowest rate ever as investors gain confidence that consumer spending is strengthening.
Ford, the only U.S.-based automaker to decline a federal bailout, is offering the largest portion of its $1.09 billion deal at yields as low as 20 basis points more than benchmark interest rates, half what investors demanded in November, a person familiar with the matter said. Seattle-based retailer Nordstrom sold $500 million of 10-year, 4.75 percent securities.
Corporate borrowers that serve U.S. consumers are selling debt as returns on their bonds accelerate. Retailers, which lost 0.35 percent in March, have gained 0.96 percent this month through yesterday, according to Bank of America Merrill Lynch index data. Retail sales rose 1.6 percent last month, more than anticipated and the biggest gain in four months, increasing the odds of an economic recovery.
“There’s no question that the consumer is back,” said James C. Camp, managing director of fixed income at Eagle Asset Management Inc. in St. Petersburg, Florida, with $17 billion in assets under management.
Retailers’ sales, which declined every month from September 2008 to August 2009, have rebounded as employment and consumer confidence have improved. The U.S. economy added 162,000 jobs in March, the most in three years. The Conference Board’s confidence index rose to 52.5 last month from 46.4 in February.
Standard & Poor’s raised its ratings on consumer cyclical companies such as retailers by a 2-to-1 margin this year, compared with 0.8-to-1 for corporate America overall, according to data compiled by Bloomberg.
Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than government debt was unchanged yesterday at 143 basis points, or 1.43 percentage point, the lowest since November 2007 and down from a record 511 basis points in March 2009, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 3.929 percent.
Vesteda sold 350 million euros ($470 million) of notes backed by commercial properties in the first European deal of its kind in seven months. Vesteda sold its AAA rated notes through Vesteda Residential Funding II, a special-purpose company created to package mortgages into securities, the Maastricht, Netherlands-based property owner said in a statement yesterday. The bonds were priced to yield 1.63 percentage points more than Euribor and placed with one investor.
In emerging markets, the extra yield investors demand to own bonds instead of Treasuries fell 0.01 percentage point to 2.36 percentage points, according to the JPMorgan Emerging Market Bond Index. The gap this year had widened to as much as 3.23 percentage points on Feb. 8.
Investors should buy emerging-market debt rather than bonds of developed countries because advanced economies are poised for a period of slower growth, according to Pacific Investment Management Co., which manages the world’s largest bond fund.
Increased taxation, regulation and government intervention in business combined with financial companies’ efforts to reduce risk after the credit crisis will drive investors from developed economies, Brian Baker, Pimco Asia Ltd.’s chief executive officer, said at the FundForum Asia conference in Hong Kong yesterday.
Russian Bond Sale
Russia’s first international bond issue since its 1998 default, which is due to be offered for sale tomorrow, is driving borrowing costs to record lows for the country’s largest companies, according to Renaissance Capital.
The sale will lower borrowing costs for gas export monopoly OAO Gazprom, VTB Group, the nation’s second-biggest bank, and state-owned railroad operator OAO Russian Railways by 30 basis points to 40 basis points, Renaissance analysts forecast. The nation may raise a total $7 billion, three people familiar said.
Egypt is planning to issue dollar bonds with a maturity of 10 years in a transaction managed by HSBC Holdings Plc and Morgan Stanley, according to people with knowledge of the sale.
Argentine bonds advanced for the first time in three days as gains in U.S. stocks fueled investor appetite for the South American nation’s high-yielding debt. The yield on Argentina’s 7 percent bonds due 2015 slid 0.02 percentage point to 11.41 percent, according to Bloomberg pricing data. The bond’s price rose 0.1 cent to 82.85 cents on the dollar.
Latin America may see the pace of credit rating increases slow as governments in the region refrain from implementing reforms aimed at broadening their tax base and increasing competition, Fitch Ratings said. Elections in countries including Brazil, Argentina and Colombia in the next 18 months make the passage of such reforms unlikely, Fitch analysts led by Shelly Shetty wrote in a report.
The cost of protecting against a default on European corporate debt rose, with credit-default swaps on the mostly high-yield Markit iTraxx Crossover Index of 50 companies climbing 2.5 basis points to 411.5, according to Markit Group Ltd. prices at 10:44 a.m. in London. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped 3.5 basis points to 92.5, while the Markit iTraxx Australia index retreated by 2 basis points to 78.5, Deutsche Bank AG prices show.
Investors use the default-swap indexes to hedge against losses on corporate debt or speculate on creditworthiness, and they typically fall as investor confidence increases.
Greek Rescue Talks
Credit-default swaps tied to Greece’s bonds rose 16 basis points to a record 480 basis points, according to CMA DataVision. Greek government officials joined with representatives of the European Union, International Monetary Fund and European Central Bank today to discuss activating a 45 billion-euro emergency aid package for the region’s most indebted nation.
Nordstrom’s 10-year senior unsecured notes priced to yield 100 basis points more than similar-maturity Treasuries, Bloomberg data show. The chain initially planned to sell $350 million of the debt. In November 2007, Nordstrom sold $650 million of notes due in January 2018 at a spread of 230 basis points, Bloomberg data show.
The largest portion of Ford’s offering of auto-loan debt is expected to pay a spread of 20 basis points to 25 basis points more than benchmark interest rates, according to a person familiar with the transaction. In its last sale of similar debt in November, Ford paid 45 basis points over benchmarks.
Ford is among companies selling asset-backed securities after the end of a U.S. aid program, showing investors don’t need government assistance to buy bonds backed by consumer debt. The Federal Reserve’s Term Asset Backed Securities Loan Facility concluded last month.
“Better funding costs makes it easier for Ford to go out and make loans,” said John McElravey, an analyst at Wells Fargo Securities in Charlotte, North Carolina.
The new issue is Ford’s first sale of bonds composed of auto loans since TALF ended, though the Dearborn, Michigan-based automaker’s prior issue in November was held outside of TALF. Daimler AG, Bayerische Motoren Werke AG and Deere & Co. all sold similar debt last week, Bloomberg data show.
LeasePlan Corp NV, the Dutch car-fleet management company, sold 594 million euros of bonds backed by U.K. auto leases yesterday. The AAA rated notes, issued through special-purpose company Bumper 2009-3 A, will pay a coupon of 1.5 percentage points more than the euro interbank offered rate, according to a person familiar with the sale. Royal Bank of Scotland Group Plc managed the transaction for the car-fleet management company, the person said.
With the U.S. jobless rate at 9.7 percent, the recovery in consumer confidence is fragile, said Scott MacDonald, head of credit and economics research at Stamford, Connecticut-based Aladdin Capital Holdings LLC, which oversees $12.5 billion.
“There is no way the consumer can have the same dynamic impact on the U.S. economy it did before 2008,” he said. “Unemployment is still an issue and there are still housing foreclosures. The consumer binge pre-2008 was based on borrowed money, the punch bowl is gone.”
The performance of retailers’ bonds compares with a gain of 0.97 percent this month through yesterday for U.S. investment- grade debt, following a 0.35 percent return in March, according to Bank of America Merrill Lynch index data.
Wal-Mart Stores Inc., the world’s biggest retailer, sold $2 billion of debt on March 24, tapping the U.S. corporate bond market for the first time since July. The Bentonville, Arkansas- based retailer’s five-year notes climbed 0.864 cent to 100.173 cents on the dollar as of 2:01 p.m. in New York yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bonds yielded 2.837 percent.
Lowe’s Cos., the second-largest U.S. seller of home- improvement goods, issued $1 billion of notes on April 12 in its first sale since 2007. The Mooresville, North Carolina-based company’s 10-year notes rose to 1.844 cent to 101.662 cents on the dollar to yield 4.42 percent, Trace data showed. Atlanta- based Home Depot Inc. is the biggest U.S. home-improvement retailer.
“It’s mostly an economic story from this point, with people looking for signs of life and finding some,” said James Goldstein, an analyst at CreditSights Inc. in New York. “The worst is behind retailers.”
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