JPMorgan Sells $2.5 Billion of Five-Year Debt With Lowest Coupon

JPMorgan Chase & Co. (JPM) raised $2.5 billion with five-year debt at its lowest fixed rate for that maturity as the extra yield investors demand to own bank bonds instead of government securities narrows to the least in a year.

The largest U.S. lender by assets issued the 2 percent, senior unsecured bonds due August 2017 to yield 135 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. The bank’s $5 billion of 6 percent senior unsecured notes maturing in January 2018 traded at 119.1 cents on the dollar to yield 2.23 percent with a 154 basis-point spread on Aug. 10, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

JPMorgan sold the new securities as relative yields on corporate bank debt fall to 233 basis points as of Aug. 10, the narrowest since August 2011, according to Bank of America Merrill Lynch index data. Credit-default swaps linked to the New York-based lender that’s struggled to stem losses on soured hedges made by its chief investment office have dropped to 119.5 basis points today from a 2012 high of 171 in June.

“We have been constructive on this credit through the course of dealing with the CIO trading losses, and we continue to view this firm as the premier domestic bank,” Don Jones, an analyst at Sterne Agee & Leach Inc., wrote today in a research note.

Swap Spread

JPMorgan swaps were trading 91 basis points below the average cost of default insurance for banks including Bank of America Corp., Wells Fargo & Co., Goldman Sachs Group Inc., Morgan Stanley and Citigroup Inc. on Aug. 10, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The spread was 103 basis points April 4, before Bloomberg News reported the bank had amassed a position in the Markit CDX North America Investment Grade Index Series 9 that may have been as much as $100 billion. JPMorgan Chief Executive Officer Jamie Dimon said July 13 that the botched trades may saddle the bank with a $7.5 billion loss.

The new bonds may be rated A2 by Moody’s Investors Service, its sixth-highest grade, according to a person familiar with offering who asked not to be identified citing lack of authorization to speak publicly about the sale. Moody’s downgraded JPMorgan two levels to A2 in June.

JPMorgan managed the sale of the new debt, which has the lowest coupon among the firm’s fixed-rate, five-year bond issues bigger than $100 million, Bloomberg data show.

To contact the reporter on this story: Charles Mead in New York at cmead11@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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