Corporate Bonds Price Well, Secondary Market Weakens
February 09 2012 - 6:25PM
Dow Jones News
High-grade corporate bonds weakened in Thursday trading but
appetite for new-issues remained upbeat as a handful of borrowers
improved pricing terms in the primary market.
Among the large new issues were a $1.4 billion two-part issue
from The Walt Disney Co. (DIS) and a $1 billion deal from India
energy company Reliance Industries Ltd. (500325.BY). Both priced at
better levels than original guidance, with spreads on the Reliance
deal tightening 20 basis points.
Companies tapping the market are funding at cheap interest
rates, while investors continue to find value based on the extra
yield corporate bonds offer over low-yielding Treasury bonds.
Disney offered 47 and 62 basis points over five- and 10-year
Treasury rates, pricing its bonds to yield 1.324% and 2.63%,
respectively.
Reliance gave investors 345 basis points over Treasurys on
10-year bonds, borrowing at 5.468%. The deal is the largest
dollar-denominated deal from an Indian corporate borrower since
late September, and one of only 14 such deals since 1995, according
to data provider Dealogic.
"Absolute rates are attractive to the financer, and spreads are
attractive to the investor," said Scott Kimball, portfolio manager
at Miami-based Taplin, Canida & Habacht LLC, a unit of BMO
Global Asset Management.
He said the streak of positive headlines in recent weeks has
boosted comfort among issuers and buyers.
The high-grade market digested seven deals worth $11.5 billion
on Wednesday, bringing February issuance up to $43.37 billion,
according to Dealogic. That's more than half the $83.5 billion that
hit the market last month, and compares with $60.5 billion of
new-issuance in all of February 2011.
While issuance has been surging, yields have remained at
historical lows.
The Barclays Capital investment-grade index hit a six-month low
of 3.38% on Feb. 2, rose in the days afterwards, and returned to
close there Wednesday. The all-time low going back to 1973 is
3.37%.
Trading has been relatively directionless this week, indicating
some skepticism about far the rally can go; however, the spread on
the Barclays index tightened 10 basis points to 194--the lowest
since Aug. 12.
Smaller deals in Thursday's market included a $300 million
offering of 10-year bonds from Kennametal Inc. (KMT), and a $300
million reopening of 10-year bonds from Dolphin Energy, an
Abu-Dhabi company majority-owned by state-run investment firm
Mubadala.
The Dolphin Energy deal is a reopening of a $1 billion deal
offered to investors Tuesday. The company liked the cheap rates and
didn't hesitant to borrow more at similar terms. A banker away from
the deal called the reopening "a testament to how strong the market
is right now."
Other deals that priced Thursday included a $250 million
reopening of 7.375% perpetual notes from Brazilian petrochemicals
company Braskem SA (BAK, BRKM5.BR), and a $200 million two-year
floating-rate deal from Banco Santander Chile.
The Braskem bonds garnered $1.86 billion of orders, marking
incredible demand for the dollar-denominated deal. Asian investors
made up about 48% of the allocation, while Europe represented about
28%, with the rest going to U.S. investors, Dow Jones reported
earlier Thursday.
The average new-issue in the last four weeks has garnered five
times the needed bids, or orders from investors, to get it done,
according to Standard and Poor's LCD. That's the highest average
since the last summer.
Markit's CDX North America Investment-Grade Index was flat for
most of the day but deteriorated 2.4% in the late afternoon. It now
stands at 96.9 basis points--still among the best levels since
July.
-By Patrick McGee, Dow Jones Newswires; 212-416-2382;
patrick.mcgee@dowjones.com