SAN Banco Santander SA

By Mike Cherney 

Bond-market turmoil mounted Monday, as three companies reduced or put off planned bond sales in response to soft investor demand, damped by concerns that a global economic slowdown is taking shape.

Santander Holdings USA Inc., the U.S. arm of Spanish bank Banco Santander SA, canceled a planned sale that had been expected at $1 billion or more, a person familiar with the deal said. Chattanooga, Tenn.-based shopping-center company CBL & Associates Properties Inc. pulled a $300 million bond sale. Westfield Corp., another shopping-center firm, canceled the sale of 10-year bonds, though the company was able to sell $1 billion in five-year debt at higher yields than initially expected.

The market weakness is the latest sign of building worries about the pace of global economic growth. The deals pulled Monday came from companies carrying investment-grade ratings; bankers had little trouble selling similar bonds earlier in the year.

"I have never seen the investment-grade primary markets this schizophrenic before," said Ron Quigley, managing director and head of fixed-income syndicate at Mischler Financial Group. "One day the window is open, the next it's slammed shut."

U.S. corporate-bond issuance in 2015 is up 15% from the comparable year-ago period, according to Securities Industry and Financial Markets Association data, after setting records in each of the past three years.

But the market action over the past month reflects anxiety among some investors that slower growth in China and persistently low commodity prices will push some companies into financial distress and dim global economic prospects. Bond investors in recent months have demanded higher yields relative to Treasurys to own U.S. corporate debt, indicating some worry about companies' ability to pay back their debt.

"We're starting to become a little more cautious in terms of our views," said Christopher Coolidge, a portfolio manager at Brandywine Global Investment Management, which oversees $65 billion. "We're OK heading into the end of the year, but next year I think is going to be pretty tough for the U.S. economy."

Bonds backed by mining giant Glencore PLC dropped sharply after an analyst report from Investec Securities renewed questions about whether the Switzerland-based company will be able to reduce its debt load amid soft commodity prices. The prices of some Glencore bonds fell as much as 25%, a large drop for a company that still commands investment-grade ratings.

"I've never seen bonds react so violently to a research report," said Tim Doubek, senior portfolio manager at Columbia Threadneedle Investments, which oversees about $500 billion.

Hewlett-Packard Co. could represent another test. The company is prepping a sizable bond sale that was expected to sell as early as Monday, some investors and analysts said. H-P could still sell the bonds later in the week.

An H-P spokeswoman declined to comment. Representatives for Westfield and Santander didn't respond to requests for comment.

CBL pulled its bond sale "in light of today's capital-market conditions, " the company said in a statement. "We decided to postpone the offering until market conditions become more favorable."

Corporate-debt markets had been consistently wide open in recent years, as investors bet that slow but steady economic growth in the U.S. would support corporate earnings.

Monday's events come after companies in the junk-bond market, where companies have lower credit ratings, were forced last week to increase yields on new debt sales. Altice NV paid higher yields on a bond offering backing its purchase of Cablevision Systems Corp. and had to reduce the size of its deal from $6.3 billion to $4.8 billion. Olin Corp. also reduced the size of its bond sale and boosted interest payments to fund its acquisition of Dow Chemical Co.'s chlorine-products unit.

Junk bonds, which are viewed as a more sensitive indicator of economic conditions because the companies are more indebted and have less cushion to withstand a downturn, logged a poor day Monday. The SPDR Barclays High Yield Bond ETF was down about 1.4% on the day, almost as bad as the 1.9% drop in the Dow Jones Industrial Average stock benchmark.

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(END) Dow Jones Newswires

September 28, 2015 19:09 ET (23:09 GMT)

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