Bond sales fall to least in decade, yields soar
Sunday, 30 May 2010
LONDON, May 28 (Bloomberg): Companies sold the least amount of bonds in a decade this month as concern Europe's sovereign debt crisis will slow the global economy drove up relative borrowing costs by the most since the aftermath of Lehman Brothers Holdings Inc's collapse.
Borrowers issued $66.1 billion of debt in currencies from dollars to yen, a third of April's tally and the least since December 2000, according to data. At least 14 companies withdrew offerings, including New York-based retailer Jones Apparel Group Inc and theater chain operator Regal Entertainment Group.
"There's still a lack of risk appetite for company debt," said Ben Bennett, who helps manage the equivalent of $125 billion of corporate bonds as credit strategist at Legal & General Investment Management in London. "There needs to be a couple more days of stability before we see green shoots. At the moment it's a small, straggly weed."
The extra yield investors demand to own corporate bonds rather than government debt soared the most since at least November 2008, according to Bank of America Merrill Lynch index data. Spreads widened 44 basis points to 193 basis points, according to Bank of America Merrill Lynch index data.
Corporate credit has lost 0.65 per cent this month, including reinvested interest, snapping four months of positive returns, index data show.
"The biggest issue is the volatility and the uncertainty about where financings can get completed and which ones can't," said Robert Harteveldt, global head of leveraged finance at Jefferies Group Inc. in Stamford, Connecticut. "You've started to see deals get pulled and there's no question money has left the market."
While conditions improved this week, spreads will have to tighten before companies can sell debt again, Bennett said.
Elsewhere in credit markets, credit-default swaps soared this month, while a benchmark for leveraged loan prices is poised to fall for the second straight week, the longest slump since Feb. 12.
The London interbank offered rate shows signs of stabilizing after rising to the highest since July.
"Investors are looking to park their money in safe names at the moment as market conditions are so volatile," said Harpreet Parhar, a credit strategist at Credit Agricole SA in London. Issuers may need as much as 10 days of market stability before they consider benchmark-size bond offerings, he said. Many "investment grade issuers prefunded last year, so there's no pressure to come to the market," he said.
Credit-default swaps on the Markit iTraxx Europe Index of 125 companies with investment-grade ratings, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, surged 30 basis points this month to 117.5, according to Markit Group Ltd.
That's on pace for the biggest monthly increase since October 2008. The gauge rose 0.3 basis point today as of 5:46 pm in London.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose about 30 basis points this month, according to CMA DataVision. The Markit CDX North America Investment Grade Index climbed 25 basis points this month to 116.6, and traded as high as 127.8 May 6, Markit Group prices show.
Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. The indexes rise as investor confidence in credit markets deteriorates.
Prices on the Standard & Poor's/LSTA US Leveraged Loan 100 Index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, closed yesterday at 89.06 cents on the dollar, down from 92.72 cents at the end of April.
Leveraged, or high-yield, high-risk debt, is rated below Baa3 by Moody's Investors Service and BBB- by S&P.
Borrowers issued $66.1 billion of debt in currencies from dollars to yen, a third of April's tally and the least since December 2000, according to data. At least 14 companies withdrew offerings, including New York-based retailer Jones Apparel Group Inc and theater chain operator Regal Entertainment Group.
"There's still a lack of risk appetite for company debt," said Ben Bennett, who helps manage the equivalent of $125 billion of corporate bonds as credit strategist at Legal & General Investment Management in London. "There needs to be a couple more days of stability before we see green shoots. At the moment it's a small, straggly weed."
The extra yield investors demand to own corporate bonds rather than government debt soared the most since at least November 2008, according to Bank of America Merrill Lynch index data. Spreads widened 44 basis points to 193 basis points, according to Bank of America Merrill Lynch index data.
Corporate credit has lost 0.65 per cent this month, including reinvested interest, snapping four months of positive returns, index data show.
"The biggest issue is the volatility and the uncertainty about where financings can get completed and which ones can't," said Robert Harteveldt, global head of leveraged finance at Jefferies Group Inc. in Stamford, Connecticut. "You've started to see deals get pulled and there's no question money has left the market."
While conditions improved this week, spreads will have to tighten before companies can sell debt again, Bennett said.
Elsewhere in credit markets, credit-default swaps soared this month, while a benchmark for leveraged loan prices is poised to fall for the second straight week, the longest slump since Feb. 12.
The London interbank offered rate shows signs of stabilizing after rising to the highest since July.
"Investors are looking to park their money in safe names at the moment as market conditions are so volatile," said Harpreet Parhar, a credit strategist at Credit Agricole SA in London. Issuers may need as much as 10 days of market stability before they consider benchmark-size bond offerings, he said. Many "investment grade issuers prefunded last year, so there's no pressure to come to the market," he said.
Credit-default swaps on the Markit iTraxx Europe Index of 125 companies with investment-grade ratings, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, surged 30 basis points this month to 117.5, according to Markit Group Ltd.
That's on pace for the biggest monthly increase since October 2008. The gauge rose 0.3 basis point today as of 5:46 pm in London.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose about 30 basis points this month, according to CMA DataVision. The Markit CDX North America Investment Grade Index climbed 25 basis points this month to 116.6, and traded as high as 127.8 May 6, Markit Group prices show.
Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. The indexes rise as investor confidence in credit markets deteriorates.
Prices on the Standard & Poor's/LSTA US Leveraged Loan 100 Index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, closed yesterday at 89.06 cents on the dollar, down from 92.72 cents at the end of April.
Leveraged, or high-yield, high-risk debt, is rated below Baa3 by Moody's Investors Service and BBB- by S&P.