US convertible bond volume is at its highest level since 2002 and the US Federal Reserve might be behind the boom, according to analysts. Fourteen convertible bonds have been filed in the US in the past fortnight with an expected volume of $8.7bn (€6.6bn). Nearly $3bn of convertibles were launched in 24 hours.
Luke Olsen, an analyst at Barclays Capital, said: “There has been a raft of US new issues, despite scarcity everywhere else.” He attributed this to positive sentiment returning to the market after the Fed’s dovish recent statement on interest rates, which referred to “future policy adjustments” rather than to “additional firming”, which had been expected.
Issues last week included those by Vornado, an office and retail real estate investment trust, which launched $1.4bn worth of convertible bonds, led by JP Morgan, Citigroup, Deutsche Bank and Lehman Brothers. ProLogis, one of the world’s biggest warehouse developers, US miner Freeport-McMoRan Copper & Gold, and telecommunications group Nortel each filed $1bn worth of convertible bonds.
ProLogis’ issue was run by JP Morgan, Morgan Stanley and UBS and Freeport was advised by Merrill Lynch and JP Morgan. Nortel did not reveal its bookrunners.
Host Hotels & Resorts launched a $600m convertible led by Goldman Sachs, Citigroup, Banc of America, Merrill Lynch and Deutsche Bank on the New York Stock Exchange.
Pharmaceuticals company ViroPharma launched a $200m issue led by Goldman Sachs and Credit Suisse. Chemicals group Pioneer was led by CIBC in its $100m convertible.
US convertible bond volume stands at $24bn after 55 deals this year, up from $12.8bn through 23 deals last year. This year’s total is the highest since 2002, when 52 deals raised $29.7bn.
JP Morgan last week stole the crown from Deutsche Bank to top US convertible bond research with a 23.7% market share, followed by Deutsche Bank with 16.6% and Merrill Lynch with 14%.
Real estate has generated the biggest sector volume with 35%, raising $8.5bn in 15 deals, followed by finance, which garnered $3.5bn from four deals.
Barclays Capital analysts revised their Federal Reserve policy outlook and expect a year-end federal funds rate of 5.75%, down from their previous estimate of 6.0%. Global equity markets were positive last week for the first time since December.
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