Morgan Stanley Plans to Sell $1.5 Billion of Bonds

Morgan Stanley, the sixth-largest U.S. bank by assets, plans to sell $1.5 billion of notes as U.S. financial debt overcomes foreclosure investigations and slumping trading revenue to outperform overall corporate securities.

The five-year debt, set to be sold as soon as today, may yield 225 basis points more than similar-maturity Treasuries, said a person familiar with the offering, who declined to be identified because terms aren’t set.

U.S. bank bonds are beating overall corporate debt for a second month even as states probe the industry’s foreclosure practices. Morgan Stanley last week reported a third-quarter loss on a per-share basis, in its worst trading quarter since 2008. Still, investors favor the premium over Treasuries on bank debt versus that of industrials, said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management.

“Just because they’re in a business that’s maybe slowing down in the near term doesn’t mean they’re not going to get good pricing,” said Mikelic, who helps oversee $14 billion of fixed-income assets, including Morgan Stanley debt, in Grand Rapids, Michigan. “We still like financials relative to industrials, because industrial spreads have just come in so much.”

The average 225 basis-point spread on U.S. bank debt compares with a 155 basis-point yield over Treasuries on industrial bonds, the lowest since May 3, according to Bank of America Merrill Lynch index data. A basis point is 0.01 percentage point.

Bank Bonds

U.S. bank debt has returned 0.52 percent to investors this month, exceeding the 0.31 percent gain on all corporate debt, according to the index data. That follows a 1.18 percent gain in September, which also beat the 0.59 percent return on overall corporate bonds.

“It’s tough to find value anywhere in corporate land because everything’s just run in so tightly, spread-wise,” Mikelic said.

Morgan Stanley last issued five-year notes on July 21 as part of a $3 billion offering, according to data compiled by Bloomberg. The $1.25 billion of 4 percent debt priced at 99.655 cents on the dollar to pay a spread of 245 basis points, Bloomberg data show.

The notes due in July 2015 traded yesterday at 103.323 cents on the dollar to yield 3.237 percent, or 210.4 basis points more than benchmarks, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Morgan Stanley trails Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. in size.

Goldman Sachs reported earnings that beat analysts’ estimates as lower costs and higher investment-banking revenue cushioned a decline in trading.

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