JPMorgan Sells Euro Bonds in Slowest New Issue Start Since 2008Hannah Benjamin
JPMorgan Chase & Co., which sold 10-year dollar bonds at a record low 3.2 percent two weeks ago, priced similar-maturity notes in euros as debt sales in the currency head for the slowest January since 2008.
The largest U.S. bank by assets, which last issued euro debt in November, sold 1 billion euros ($1.3 billion) of bonds to yield 95 basis points above the swap rate, according to data compiled by Bloomberg. That compares with the 155 basis-point spread Goldman Sachs Group Inc. paid on 10-year debt it sold Jan. 25.
Banks are poised to overtake industrial companies as the safest borrowers in the $5.1 trillion U.S. corporate bond market for the first time since the start of the financial crisis, according to data compiled by Bloomberg. Investors demand an extra 154 basis points in yield over benchmarks to buy bonds of JPMorgan, Wells Fargo & Co. and other lenders, compared with 138 basis points for companies from Alcoa Inc. to Ford Motor Co., Bank of America Merrill Lynch index data show.
“Financials are perhaps dominating sales so far this year as they issued about 30 percent less debt in 2012 than they had in redemptions,” said Jonathan Pitkanen, the London-based head of credit research at Threadneedle Asset Management Ltd. “The macro environment in Europe doesn’t look to be improving which is why perhaps investors are becoming more wary of buying the bonds of non-financial corporates.”
The cost for banks to convert euro interest payments into dollars is holding near a 20-month low. The three-month cross-currency basis swap was little changed at 14 basis points below Euribor, the lowest cost to swap since May 2011.
JPMorgan’s 1.5 billion euros of 2.75 percent bonds due in 10 years which it sold in August yield 83 basis points more than swaps, 17 tighter than at issue, Bloomberg data show. The spread on Goldman Sachs’ 3.25 percent debt due February 2023 has tightened five basis points since issue last week.
Patrick Burton, a spokesman for JPMorgan in London, declined to comment.
Today’s sales lift corporate bond issuance in euros and pounds to 60.1 billion euros ($80.8 billion) so far this year, the slowest start to a year since 2008 when 34 billion euros were issued in the first three weeks of January, according to Bloomberg data.
BASF SE offered the only non-financial benchmark-sized bond in the single currency, Bloomberg data show. It priced 500 million euros of eight-year notes to yield 38 basis points more than swaps, the tight end of the 40 basis point range initially marketed, a person with knowledge of that deal said.
“There has been lots of seven-year to 10-year maturity issuance which is desirable if you are a treasurer but introduces an element of volatility for investors versus more traditional five-year paper,” said Jens Vanbrabant, lead portfolio manager at London-based investment firm ECM Asset Management Ltd. “Nevertheless there are areas that still represent good value.”
In derivatives markets, the Markit iTraxx Financial Index of credit-default swaps on the senior debt of banks and insurers rose one basis point to 136 at 3:35 p.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased one basis point to 106.
The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield ratings added two basis points to 422.
A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.