| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Corporate Bond Returns Rising Fastest Since ‘98: Credit Markets |
By Bryan Keogh
Jan. 12 (Bloomberg) -- Corporate bonds are providing the best returns in more than a decade, spurring sales by PepsiCo Inc. and Bayerische Motoren Werke AG as investors anticipate that earnings growth will make it easier for companies to meet debt payments.
The Bank of America Merrill Lynch Global Broad Market Corporate Index returned 1.02 percent since Dec. 31, the biggest gain for the start of a year since rising 1.51 percent in the same period of 1998. Financial and energy companies are the top performers, with issues by New York-based American International Group Inc. rallying 3.62 percent, and oil refiners rising 2.18 percent, the index shows.
Amid no signs that last year’s record rally will end soon, combined profits of companies in the Standard & Poor’s 500 Index likely rose 62 percent last quarter, according to estimates from analysts compiled by Bloomberg. Some $95 billion has been raised in the global corporate bond market in 2010, compared with $101 billion in the same period of 2009, Bloomberg data show.
“We’re telling our clients get into the markets now, get some of your financing done now, don’t leave it all for later in the year because it could be more difficult to finance by the middle of the year or later in the year,” said Mark Bamford, the head of global fixed-income syndicate at Barclays Capital Inc. in New York. Barclays is the biggest underwriter of U.S. debt this year, according to data compiled by Bloomberg.
Elsewhere in credit markets, interest-rate swap spreads narrowed for a third day as Treasuries gained and investors added to bets the Federal Reserve will keep its target rate for overnight loans between banks at a record low through at least mid-2010. Indonesia is preparing to raise about $2 billion of 10-year bonds, after scrapping plans to also issue 30-year debt.
Mortgages, Swaps
Corporate bonds rallied 16.3 percent on average in 2009, after losing 4.73 percent in 2008 as credit markets froze, according to the Merrill Lynch index, which tracks almost 8,500 securities.
The extra yield investors demand to own the debt instead of Treasuries has fallen 15 basis points, or 0.15 percentage point, this year to 161 basis points. Last year, the spread narrowed 313 basis points. Corporate yields closed yesterday at 4.17 percent in New York, compared with last year’s high of 7.41 percent on March 17.
PepsiCo, the second-largest soft-drink maker, sold $4.25 billion of securities yesterday to finance its acquisition of two bottlers, split between 18-month, 5-year, 10-year and 30- year bonds.
Higher Rates
The Purchase, New York-based company’s five-year notes were priced to yield 57 basis points more than Treasuries, compared with a spread of 180 basis points on securities of the same maturity debt sold in February. The older bonds last traded Jan. 5 at 103.95 cents on the dollar, up from 99.788 cents when they were issued.
“Coming to market now versus later is a good move, because everyone is anticipating that by the end of this year, rates will be higher,” said Stephen Mahoney, a money manager at Glenmede Trust Co. in Philadelphia, who oversees $4 billion in fixed-income assets that includes PepsiCo bonds. The company’s outstanding bonds are trading “very rich,” signaling the time was right for PepsiCo to issue, he said.
Investors added a record $153.2 billion to U.S. bond funds in 2009 as the economy began to recover from the first global recession since World War II, according to EPFR Global, a research firm in Cambridge, Massachusetts. John Lipsky, the first deputy managing director at the International Monetary Fund, said in a Bloomberg Radio interview on Jan. 6 that the agency may raise its 3.1 percent forecast for global growth.
‘Strong Liquidity’
“Asset managers need to invest a lot of money from pension funds, insurance companies and banks, so bond spreads are tightening,” said Santiago Rubio, who helps oversee about 14 billion euros ($20 billion) as head of investment funds at La Caixa’s asset-management unit in Madrid. “The strong liquidity on the buy-side will be matched by a no-less-strong volume of new issuance, so the spread tightening may stop.”
Bamford said sales in the U.S. may decline about 10 percent this year from the 2009 record.
“The number, though, will vary based on the number of mergers and acquisitions,” Bamford said. “If there are far more mergers and acquisitions, we would expect to see far more corporate issuance.”
Nasdaq Borrowing
Nasdaq OMX Group Inc., the second-biggest U.S. equity exchange operator, said it will borrow almost $2 billion in bonds and loans. Bank of America and JPMorgan Chase & Co. are arranging two term loans of $500 million each and a $250 million revolving credit line, Nasdaq said yesterday in a regulatory filing. The New York-based company said it also plans $700 million of senior notes due 2015 and 2020.
Proceeds will be used to repay the $1.7 billion Nasdaq owed in term loans as of Dec. 31 and to refinance a $75 million revolver with no outstanding debt, according to the filing. The transaction will extend Nasdaq’s maturities and provide it with looser debt terms, it said.
Munich-based BMW, the largest maker of luxury cars, issued 2.5 billion euros ($3.6 billion) yesterday in the biggest bond sale in Europe by a non-financial company in almost three months, Bloomberg data show.
The offering was split between 1 billion euros of notes due April 2013 that pay interest at 68 basis points more than the benchmark mid-swap rate and 1.5 billion euros of notes due January 2017 with a spread of 90 basis points.
Indonesia Bonds
Indonesia’s 10-year bonds may be priced to yield about 6 percent, or 2.2 percentage points more than similar-maturity U.S. Treasuries, according to people familiar with the sale. A sale of 30-year bonds was canceled. The debt would have yielded about 7.25 percent, or 2.54 percentage point more than Treasuries, according to the people.
European governments are preparing to expand their funding sources. Spain hired banks to sell bonds as it starts raising a budgeted 211.5 billion euros this year. Austria is issuing at least 3 billion euros of seven-year notes, according to the country’s Federal Financing Agency.
The rate at which companies defaulted on their debt fell for the first time in two years in the fourth quarter, Moody’s Investors Service said yesterday. The global speculative-grade default rate dropped to 12.5 percent, from 12.6 percent in the previous three months, Moody’s said in a report.
S&P raised the ratings on 184 U.S. borrowers last quarter and cut 181, the first time upgrades exceeded downgrades since the three months ended June 30, 2007, Bloomberg data show.
Swap Spreads
Rising confidence can be seen in U.S. interest-rate swap spreads. The difference between the rate to exchange floating- for fixed-interest payments and Treasury yields for two years, known as the two-year swap spread, narrowed as much as 0.94 basis point to 26.25 basis points. That’s down from last month’s intraday high of 39.75 on Dec. 8.
Swap spreads are based in part on expectations for the London interbank offered rate, or Libor, and are used as a gauge of investor perceptions of credit risk. Swap rates serve as benchmarks for investors in many types of debt, including mortgage-backed and auto-loan securities.
The most-senior mortgage securities backed by option adjustable-rate mortgages jumped 9 cents on the dollar from mid- December to 58 cents at the end of last week, according to Barclays. That’s almost double the low of 33 cents in March.
So-called non-agency home-loan bonds have been “leading the pack,” Barclays analysts led by Ajay Rajadhyaksha in New York wrote in a Jan. 8 report. Investors, who in December were trying to protect their 2009 gains and boost their year-end cash to show shareholders, regulators and clients, are now buying, according to Scott Buchta, head of investment strategy at Guggenheim Securities LLC in Chicago.
‘Demand for Assets’
“It’s cash that was on the sidelines at the end of the year coming in,” Buchta said. “You’re seeing huge demand for assets.”
Yield spreads on the most-senior 10-year commercial- mortgage securities originally rated AAA narrowed 0.26 percentage point last week to 3.99 percentage points, according to Morgan Stanley data. Spreads have contracted from 4.88 percentage points in the week ended Dec. 11 and a record 14.26 percentage points in November 2008.
In Australia, overseas borrowers are selling the most local-currency notes in almost three years to exploit the record-low cost of swapping the proceeds for U.S. dollars.
Australian Banks
So-called kangaroo bond sales jumped to A$9 billion ($8.4 billion) last quarter from A$5.3 billion in the three months ended Sept. 30, according to data compiled by Bloomberg. The sales were the highest since A$11.4 billion was raised in the first three months of 2007. So far this year, kangaroo bonds totaled A$1.75 billion.
Financial institutions are benefitting as Australian banks increase overseas borrowing before a change in capital reserves regulations triggered by the global credit freeze. A sevenfold increase in U.S. dollar bond sales after the rules were proposed drove the cost of exchanging debt in greenbacks for Australian dollars to the highest on record, the five-year basis swap shows, meaning kangaroo bond sellers performing the opposite transaction are getting the biggest-ever discount.
Borrowers typically use cross-currency basis swaps to exchange floating-rate payments in one currency to another. The Australian dollar basis swap measures the cost of switching interest charges pegged to the Libor for rates linked to Australia’s bank bill swap rate.
The basis swap rose to 48 basis points on Dec. 2, the highest since 1997 when Bloomberg records began, and was last at 41 basis points after averaging 16 basis points in the first nine months of 2009.
--With assistance of Esteban Duarte in Madrid, John Glover and Caroline Hyde in London, Jody Shenn, Sapna Maheshwari and Erik Schatzker in New York, and Sarah McDonald in Sydney. Editors: Robert Burgess, Ken Kohn
To contact the reporter on this story: Bryan Keogh in London at +44-20-7330-7124 or bkeogh4@bloomberg.net
To contact the editor responsible for this story: Paul Armstrong at +44-20-7330-7185 or parmstrong10@bloomberg.net
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