| 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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| More |
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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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Citigroup Selling TruPS After Repaying Bailout: Credit Markets |
By Pierre Paulden and Caroline Salas
March 10 (Bloomberg) -- Citigroup Inc., seeking capital after repaying bailout funds to the Treasury, is selling trust preferred securities as rising investor demand drives borrowing costs to near the lowest in almost five years.
The bank plans to issue $2 billion of the securities, known as TruPS, as soon as today, according to a person familiar with the offering who declined to be identified because terms aren’t set. The 30-year fixed-to-floating rate securities may initially yield about 8.5 percent, lower than the 8.875 percent expected yesterday, another person said.
Citigroup, 27 percent owned by the U.S. government, is issuing the debt after borrowers sold $13.9 billion of U.S. corporate bonds yesterday, the busiest day in more than a month. The New York-based bank’s offering shows that liquidity is improving, which will help the economy, said Daniel Fuss, vice chairman at Loomis Sayles & Co. in Boston.
“It’s wonderful news for Citigroup and also shows markets are functioning very well,” said Fuss, whose Loomis Sayles Bond Fund is in the 97th percentile among peers this year, according to data compiled by Bloomberg.
Citigroup is selling the TruPS following a $7.6 billion loss in the fourth quarter after it repaid $20 billion of the securities issued under the Treasury’s Troubled Asset Relief Program, set up in late 2008 to support financial firms and markets.
“It’s a capital structure need,” said David Hendler, the head of U.S. financial services research at CreditSights Inc. in New York. “It’s not as dilutive like common equity issuance and they’ve already done a ton of that.”
Novartis, MGM Mirage
Yields on corporate bonds are near five-year lows, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. They fell to 4.015 percent on Feb. 26, the lowest since May 31, 2005, and were 4.023 percent as of March 9. Average spreads over Treasuries fell to 1.6 percentage points, matching the lowest this year.
Elsewhere in credit markets, Novartis AG, Switzerland’s second-biggest drugmaker, and MGM Mirage, the largest casino owner on the Las Vegas strip, led the busiest day for U.S. corporate bond sales since Feb. 4, Bloomberg data show. Novartis sold $5 billion of 3-, 5- and 10-year senior notes for its acquisition of Alcon Inc., the world’s largest eye-care company. MGM Mirage issued $845 million of 10-year bonds to repay loans.
GMAC Inc. may sell 10-year senior unsecured notes in a benchmark offering, according to a person familiar with the transaction who declined to be identified because terms aren’t set. Benchmark offerings generally exceed $500 million Washington-based Fannie Mae, the mortgage-finance company under U.S. government control, plans to sell three-year benchmark notes tomorrow, according to a statement e-mailed today.
Credit-Default Swaps
High-yield companies tracked by Bank of America Merrill Lynch reported better earnings and lower debt loads in the fourth quarter, reducing overall market leverage by 0.7 times from the previous three months, according to analysts at the bank.
The companies that have reported earnings posted a total gain of 11 percent in earnings before interest, taxes, depreciation and amortization and a 4.5 percent drop in net debt, Bank of America analysts Oleg Melentyev and Mike Cho wrote in a report today.
The cost of protecting against U.S. corporate defaults fell today. The Markit CDX North America Investment-Grade Index, linked to credit-default swaps on 125 companies, declined 1.5 basis point to a mid-price of 82 basis points as of 11:37 a.m. in New York, according to broker Phoenix Partners Group. The Markit iTraxx Europe index of swaps on 125 companies with investment-grade ratings dropped 0.5 basis point to 73.5 basis points, JPMorgan Chase & Co. prices show.
‘Screaming Bargain’
Credit swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point equals $1,000 a year on a contract protecting against default on $10 million of debt for five years.
Citigroup is the sole bookrunner on its sale of TruPS, the company said in a prospectus filed with the U.S. Securities and Exchange Commission. The filing didn’t specify the amount of the sale. The debt is expected to be rated Ba1 by Moody’s Investors Service and BB- by Standard & Poor’s.
Trust preferred securities, which have characteristics of both equity and debt, are used by financial firms to bolster capital. The hybrids rank after debt for repayment in a bankruptcy.
Citigroup Shares Climb
Citigroup shares rose 21 cents, or 5.5 percent, to $4.03 as of 11:36 a.m. in New York Stock Exchange composite trading, after climbing 7.3 percent yesterday, the biggest rise since August, Bloomberg data show.
“People are looking at Citi more as a stable to hopefully gradually growing entity,” Hendler said. The stock is a “screaming bargain,” CreditSights analysts wrote in a March 8 report.
The bank raised more than $80 billion of new capital last year, increasing the number of shares outstanding during the last three years sixfold to almost 30 billion. Its book value per share -- its net worth, divided by total shares outstanding -- tumbled to $5.35 as of Dec. 31 from $24.18 at the end of 2006.
“You have a lot more capital being raised by the banks so your margin of safety is much greater than it was three years ago,” said Tom Goggins, a portfolio manager with MFC Global in Boston who helps oversee $4 billion of fixed-income assets for the John Hancock Strategic Income Fund.
Citigroup’s $2.35 billion of 8.3 percent fixed-to-floating bonds due in 2057 rose 1.5 cent to 98 cents on the dollar as of 11:25 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The hybrid debt has more than tripled in price in the last year from 30.5 cents, Trace data show.
--With assistance from Beth Jinks, Jody Shenn and Richard Bravo in New York, Patricia Kuo, Caroline Hyde, Sonja Cheung and Abigail Moses in London, Katrina Nicholas in Singapore, Haris Anwar and Dana El Baltaji in Dubai, Steve Matthews in St. Louis and Joshua Zumbrun in Washington. Editors: Alan Goldstein, Richard Bedard
To contact the reporters on this story: Pierre Paulden in New York at ppaulden@bloomberg.net; Caroline Salas in New York at csalas1@bloomberg.net
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net
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Income Security Recommendation January 2013 Issue.
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