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Renewed appetite for risk trickled into the new-issue bond market and enabled companies lucky or smart enough to be borrowing to take advantage of the recent drop in yields.
Following a three-day lull in which just $2 billion of new volume was sold, three companies were on track to price $2.75 billion of new debt Thursday, and strong demand allowed each to cut the offered yield from earlier pricing guidance.
State-owned China National Petroleum Corp. led the market with a $1.15 billion deal of five- and 10-year bonds. It had received more than triple the bids needed, allowing it to narrow the spread over Treasurys by 0.20 percentage point to 1.85 and 1.9 points, respectively. Final pricing was still to come.
Deere & Co. (DE) found enough investors to increase the size of its offering to $1 billion from $750 million. It priced $500 million of three-year notes at just 0.896%, or 0.47 point over Treasurys, and $500 million of seven-year notes at 2.292%, a spread of 0.87 point.
Ventas Inc. (VTR) also boosted the size of its seven-year offering by 50% to $600 million, and it cut the offered yield 0.05 percentage point to 2.65 points over Treasurys.
The improved sentiment was reflected clearly in Markit's CDX North America Investment-Grade Index, which steadily climbed throughout the day, improving 5.1% in late trading to 97 basis points. That matches its biggest one-day improvement of 2012, according to Markit, and places the index at its best level in a week.
"This is the first day I've been back in the market for new issues in a few weeks," said a corporate bond trader in Chicago. He noted that new-issues had been performing poorly in recent weeks, making it unattractive to participate. But with the market rebounding, it pays to play.
"A lot of accounts are attracted to the new issues because there isn't a lot of paper available at par or at discount in the secondary market--that makes it attractive," he added.
Unless there's a surge of issuance following the first-quarter earnings releases from J.P. Morgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) on Friday, this will easily be the slowest week for high-grade issuance of 2012, according to Dealogic. The week's tally should finish Thursday around $5 billion; the lightest week of the year was $10.7 billion, in late January.
High-grade issuance is likely to remain slow for the rest of the month, according to Bank of America Merrill Lynch. The bank noted that April issuance tends to be soft due to earnings-related blackout periods, and robust bank volume in the first quarter could dampen issuance further, particularly with spreads on riskier bonds widening early in the month.
-By Patrick McGee, Dow Jones Newswires; 212-416-2382; [email protected]