| 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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Convertibles Beat Bonds, S&P 500 as Sales Surge: Credit Markets |
By John Detrixhe
March 17 (Bloomberg) -- Convertible bonds are returning more than the broader debt market and the Standard & Poor’s 500 Stock Index this year, prompting sales to double.
The securities have gained 3.6 percent this month, boosting year-to-date performance to 4.6 percent, according to Bank of America Merrill Lynch index data. That’s better than the 2.8 percent return through March 15 for the overall U.S. corporate credit market and the S&P 500’s 3.6 percent rally.
Priceline.com and Ciena Corp., a maker of fiber-optic gear, led $4.74 billion of convertible debt sales this year, more than double the same period in 2009, according to data compiled by Bloomberg. Convertibles are in a “sweet spot” as corporate bond yields fall relative to benchmark rates and stocks rise, said Venu Krishna, a Barclays Capital analyst.
“There’s not enough supply,” Krishna said in a telephone interview from New York. “That is also keeping prices firm. Supply is picking up but the market can absorb significantly more than what is coming now.”
European equity-linked issuance totals $5.17 billion year- to-date, making this the biggest first quarter since 2007, when the total reached $7.8 billion, Bloomberg data show. The UBS AG Convertible Global Index has risen to 232.85 from 227.97 at the start of the year.
Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than government debt fell yesterday to 156 basis points, or 1.56 percentage point, the lowest this year, from as much as 174 basis points Jan. 4, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 3.978 percent.
Merck, Ineos Bonds
Merck KGaA, the German drug and chemicals maker that agreed to buy U.S. supplier of biotechnology equipment Millipore Corp. earlier this month, is selling 3.2 billion euros ($4.4 billion) in Europe’s largest sale of bonds from a non-financial issuer this year, two people with knowledge of the deal said.
Ineos Group Ltd., the U.K.’s biggest chemicals company, plans to raise 1 billion euros from high-yield bonds and loans, the Lyndhurst, England-based company said in a statement. Ineos said it’s seeking a maturity of at least five years on the debt, which will be used to retire a “significant” amount of loans.
U.S. Steel Corp., the country’s second-largest steelmaker, sold $600 million of 10-year senior unsecured notes after boosting the offering by $10 million. The Pittsburgh-based company’s 7.375 percent notes priced to yield 382 basis points, or 3.82 percentage points, more than similar-maturity Treasuries.
AIG, Mexico
American International Group Inc.’s plane-leasing unit is planning its first offering of unsecured bonds in almost two years to pay down existing debt. AIG’s International Lease Finance Corp. plans a benchmark offering, the Los Angeles-based plane unit said yesterday in a statement. Benchmark typically means at least $500 million.
Mexico hired Bank of America Corp., HSBC Holdings Plc, ING Groep NV and Citigroup Inc.’s Banamex unit to manage a sale of 30-year inflation-linked peso bonds in the local market. The government will offer the bonds at a rate of 4 percentage points above inflation, the Finance Ministry said in a statement on its Web site. The statement gave no date or size for the sale.
MBS Dealers Sued
The Federal Home Loan Bank of San Francisco sued nine securities dealers alleging they misled it about the credit quality and risks of loans behind $19.1 billion in private-label residential mortgage-backed securities.
Units of Credit Suisse Group AG, Deutsche Bank AG, JPMorgan Chase & Co. and Bank of America Corp. were among the defendants named in two complaints filed March 15 in state court in San Francisco, according to the court’s Web site. Bill Halldin, a Bank of America spokesman, and Renee Calabro, a Deutsche Bank spokeswoman, declined to comment yesterday on the lawsuits. David Walker, a spokesman for Credit Suisse, and JPMorgan spokesman Brian Marchiony didn’t immediately return voice-mail messages seeking comment after regular business hours yesterday.
Markit Group Ltd., the London-based provider of bond and derivatives indexes, plans to create a benchmark for credit- default swaps on Asian-Pacific government bonds, according to six traders familiar with the matter. The Markit iTraxx SovX Asia Index may track swaps on the debt of China, Malaysia, Thailand, South Korea, Vietnam, the Philippines, Indonesia, Japan, Australia and New Zealand, said four of the traders, who asked not to be named because the proposal is private.
Boston Scientific Ratings
Credit-default swaps protecting against a default by Boston Scientific Corp. fell from the highest in a year as Standard & Poor’s said the company’s decision to halt sales of cardiac defibrillators won’t affect its credit rating outlook.
The five-year contracts, which are used to speculate on the Natick, Massachusetts-based company’s creditworthiness or to protect against losses on its debt, dropped 11 basis points to 143.5 basis points yesterday, according to CMA DataVision. The swaps jumped to as high as 179 basis points, prices from broker Phoenix Partners Group show, the most since March 10 of last year.
The credit swaps have climbed 43.5 basis points since Boston Scientific said two days ago it was suspending sales and voluntarily recalling its inventory of implantable defibrillators until the U.S. Food and Drug Administration could review two manufacturing changes that weren’t submitted to regulators. The company attributed the oversight to a documentation error.
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 $10 million of debt.
Derivatives Indexes
In London, the Markit iTraxx Europe index of 125 investment-grade companies fell 0.5 basis point to 75.5 basis points, JPMorgan Chase & Co. prices show.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 1.5 basis points to 91 basis points today, Citigroup Inc. prices show. The Markit iTraxx Australia index declined 1 basis point to 80.5 basis points in Sydney, according to ICAP Plc, while the Markit iTraxx Japan index rose 0.5 basis point to 122.5 in Tokyo, Morgan Stanley prices show.
The Markit CDX North America Investment Grade Index declined 1.2 basis point to 82.8 basis points yesterday, CMA prices show. It’s trading near the seven-week low of 82.5 basis points of March 8.
Treasuries advanced as Federal Reserve officials pledged to keep the target rate for overnight loans for banks near zero for an “extended period” and traders reduced bets that the central bank will raise rates over the next 12 months. The Fed has maintained the federal funds rate target in a range of zero to 0.25 percent since December 2008.
Chinese Bonds
Chinese corporate bonds will beat sovereign securities for a third straight year as limits on fund raising by local government investment companies halts a “debt issuance spree,” said Yinhua Fund Management Co.
Corporate bonds maturing in five years or more may hand investors a return of at least 5 percent in 2010, said Jiang Yongkang, director of fixed income at China’s 10th largest fund management firm. The spread between corporate bond and treasury yields will narrow as the economy recovers at a faster pace, reducing the risk of default, he said.
Convertible bonds returned 47 percent last year as they rebounded from forced hedge-fund selling caused by the financial crisis in the fourth quarter of 2008. Convertibles are still undervalued almost by 5 percent, said John Calamos, the chief executive officer of Naperville, Illinois-based Calamos Asset Management Inc., which oversees $32 billion in assets.
“Convertibles are doing what they’re supposed to be doing,” Calamos said in an interview. The bonds are “defensive” because investors are paid a coupon and can reap gains if shares rise, he said.
Ciena Notes
Excluding self-led offerings, companies have sold $4.74 billion of U.S. convertible securities this year, compared with $1.65 billion in the same period last year, $7.39 billion in 2008 and $15.6 billion in 2007, Bloomberg data show.
Ciena issued $375 million of 10-year, 4 percent senior convertible notes on March 9, Bloomberg data show. The securities can be converted into 49.0557 shares of Ciena for $1,000 of notes, or a conversion price of about $20.38 per share, the Linthicum, Maryland-based company said in a statement. The initial conversion premium was 35 percent.
Priceline.com, the Norwalk, Connecticut-based online travel agency, issued $575 million of five-year, 1.25 percent convertible securities on March 5, Bloomberg data show. The initial conversion premium was 30 percent.
Group 1 Automotive
Group 1 Automotive Inc. sold $100 million of convertible senior notes in a private offering, the Houston-based car dealership operator said yesterday in a statement. Proceeds may be used to redeem its 8.25 percent senior subordinated notes and other corporate purposes.
Convertible securities may continue to rally as yields relative to benchmark rates tighten closer to historical levels, said George Douglas, chief investment officer of Los Angeles- based SSI Investment Management Inc. The firm has about $1.2 billion in assets under management.
“With the economy recovering, I think the convertible market can do reasonably well,” said Douglas, whose firm oversees $900 million of convertible securities. “We’d like to see more supply and issuance because it makes for a healthier market.”
Non-investment-grade and non-rated convertible bonds yielded 7.38 percentage points more than Treasuries as of March 15, according to Barclays Capital. Spreads narrowed from 7.96 percentage points at the end of 2009, and compare with 21.5 percentage points in 2008 and 5.32 percentage points at the end of the previous year.
“In a normal environment, convertibles don’t outperform equities unless it’s a very credit driven return,” said Krishna of Barclays. The debt is now “fairly valued,” he said.
--With assistance from Bryan Keogh and John Glover in London, Shannon Harrington, Matthew Leising, Christine Richard, Caroline Salas, Hugh Son, Jody Shenn and Emre Peker in New York, Andres R. Martinez in Mexico City, Esteban Duarte in Madrid, Stephanie Bodoni in Brussels, Yusuke Miyazawa in Tokyo, Hugh Son and Emre Peker Editors: Charles W. Stevens, Ed Johnson
To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net.
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.
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