Bond Market Off to Booming Start in 2006 (Whooppee !) -
(AP) NEW YORK -- The corporate bond market is off to a booming start in 2006, as the usual new-year pick up in finance issuance is supplemented by a surge in companies scooping up dollars to fund merger and acquisitions and to buy back shares.
The reverberations of the supply are also being felt in the $4.2 trillion Treasury market where investors go to lock in interest rates ahead of debt sales.
The surge in supply this past week was just the beginning. Investors are gearing up for around $50 billion in additional investment-grade debt being issued this month.
A whopping $13 billion of investment-grade debt was sold Thursday, with offerings from companies including HSBC Holdings PLC, Wells Fargo & Co., Fortune Brands and Avon Products.
Proceeds from the $500 million Avon deal will be used to finance the company's $1 billion share buyback plan.
Oracle Corp. announced Friday that it plans to sell $5 billion of notes, largely to fund its purchase of Siebel Systems Inc. The offering will be a private placement that market participants expect to sell as early as next week.
WellPoint Inc., which sold $2.7 billion in debt Thursday, is using the proceeds primarily to repay debt related to its merger with WellChoice Inc., completed in late December.
Debt issuance tends to be brisk in January as issuers use new funding strategies and investors put money to work again after the holiday lull, but demand to fund purchases of entire companies is driving up deal sizes this year.
There are already $20 billion of new deals in the high-yield pipeline, many related to acquisitions, according to Montpelier, Vt.-based research firm KDP Investment Advisors.
That includes a $3.6 billion offering of unsecured notes from NRG Energy Inc., which will use proceeds to help finance its acquisition of power generator Texas Genco LLC.
And R.H. Donnelley Corp. is set to sell a $2.142 billion three-part junk bond deal, mostly to fund its buyout of Dex Media, the official publisher of the White and Yellow Pages directories for Qwest Communications International. The roadshow is Jan. 9 to 11.
Given the ease with which the market absorbed the big supply, and "the relative level of enthusiasm the market showed for it," new issuers sitting on the sidelines might be enticed to jump in while the demand is there, said Mitch Stapley, portfolio manager and chief fixed income officer at Fifth Third Asset Management, with around $14 billion in fixed-income assets.
Supply rumblings are being felt in the Treasury market where long-dated maturities have been bouncing around in recent days on what traders say is hedging by issuers.
To lock in interest rates during the sale of corporate bonds, issuers sometimes purchase Treasurys with the same maturities as the bonds they expect to issue and sell those Treasurys once investors have bought the bonds.
"Corporate issuance will continue to be a major factor (in the Treasury market) in the weeks ahead with estimates ranging from $40 billion to $60 billion over the next month," David Ader, U.S. government bond strategist at RBS Greenwich Capital, wrote in a report Friday.
The supply also has been rippling into the interest-rate swaps market where risk premiums were depressed this week as some issuers of fixed-rate debt entered into contracts to pay a floating rate. Such demand causes swap spreads to narrow.
And, large volumes of issuance in other credit markets are expected to keep traders on their toes.
Plenty of supply is on the way in the commercial mortgage-backed securities market, which also uses the Treasury market for hedging purposes. There's $7.2 billion in three fixed-rate deals slated for January but more than $25 billion already on tap for February.
These mortgage deals tend to have a bigger impact on the Treasurys market when they price than when they are put together, however. That's because the collateral backing the deals is collected over weeks or months, making the effect of the hedging leading up to the deal minuscule. The pricing, however, is done over a much shorter period.
........................................
newsday.com |
