U.S. Corporate Bond Sales Slide as Europe Crisis Deters Issuers
Corporate bond offerings in the U.S. declined, falling short of the 2011 average for the fifth straight week as borrowers withdrew from the market while European leaders struggled to resolve their debt crisis.
JPMorgan Chase & Co. (JPM), the largest U.S. lender by assets, and Goldman Sachs Group Inc. (GS) were among issuers that tapped the market for $7.35 billion of debt, 68 percent below this year’s average, according to data compiled by Bloomberg. Sales fell 45 percent from the previous period to the second-lowest weekly total of the year, with 31 percent of sales from the two banks.
Group of 20 finance chiefs are to meet Oct. 23 to discuss Europe’s fiscal problems, which are disrupting markets and threatening the global economy. Issuance has slowed as concerns mount around European sovereign debt bleeding into the balance sheets of U.S. companies. Year-to-date volume is roughly equal to the comparable span of 2010, the first time this year it hasn’t been higher.
“They’re waiting for this weekend to see if there’s any resolve in Europe, which may give the overall market a little more comfort, make it easier for issuers to come to market and take out the ambiguity of testing the market,” Timothy Cox, executive director of debt capital markets at Mizuho Securities USA Inc. in New York, said in a telephone interview.
The Group of 20 includes large industrialized and developing countries, according to its website.
The extra yield investors demand to own investment-grade corporate bonds instead of Treasuries narrowed 9 basis points this week to 242 basis points, according to the Bank of America Merrill Lynch U.S. Corporate Master index. Absolute yields on the debt fell 12 basis points to 3.95 percent after touching 4.15 on Oct. 11, the highest since April 6.
Spreads on high-yield corporate bonds tightened 25 basis points to 764 this week while average yields fell 26 basis points to 9.04 percent, the Bank of America Merrill Lynch U.S. High Yield Master II index shows.
High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- by Standard & Poor’s. A basis point is 0.01 percentage point.
Europe Recession Speculation
Investors are avoiding high-yield issuers amid speculation a Greek default may plunge Europe into a recession and make it harder for companies to pay their debts. There were no high- yield sales this week.
The three biggest euro-region economies will shrink 0.4 percent this quarter, the Organization for Economic Cooperation and Development predicted Sept. 8.
JPMorgan sold $1.75 billion of 4.35 percent notes due August 2021 on Oct. 19 that are rated Aa3 by Moody’s and A+ by S&P, Bloomberg data show. Goldman Sachs sold $500 million of 6.5 percent 50-year bonds aimed at individual buyers on Oct. 19.
Mosaic Co., the world’s largest maker of phosphate fertilizer, sold $750 million of notes on Oct. 17 in a two-part offering, its first since November 2006, Bloomberg data show.
Issuance has exceeded the 2011 weekly average of $22.8 billion just twice since June 3, Bloomberg data show. Year-to- date volume of $941 billion matched the similar period last year after having been as much as $229 billion ahead in June.
“We’re at a unique point in the market where there are low rates and spreads are beginning to compress after widening out considerably,” said Cox. “But the market is really looking for some resolve in Europe before it gets back in the pool.”
Triton Container International Ltd., the world’s largest lessor-owned fleet of marine intermodal cargo containers, plans to sell $180 million of investment-grade bonds, according to a Standard & Poor’s statement. Acadia Healthcare, which operates behavioral health centers, is expected to issue $150 million of seven-year notes rated B3 by Moody’s next week, a person with knowledge of the transaction said.
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