NEW YORK -
A large investment-grade corporate bond deal on Wednesday followed by a steady stream of offerings from companies in a variety of sectors on Thursday hasn't convinced investors that all is well in the market.
Recovering from panic in financial markets last month, the market is showing signs of getting back on its feet, but anxious investors are still finding it difficult to find their bearings.
"It's hard for people to get a sense of direction," said Scott MacDonald, research director at Aladdin Capital Management. "It's even hard to say what normalcy is going to be or how normal is defined at this stage."
British pharmaceutical company AstraZeneca PLC sold a mammoth $6.9 billion four-part deal late Wednesday, which performed well in the secondary market on Thursday.
On Thursday, Lowe's Cos. was in the market with a $1.3 billion bond offering, Bank of America Corp. had a benchmark deal, Husky Energy Inc. had a $750 million offer and Virginia Electric & Power Co. marketed a $600 million deal. There were also a bunch of smaller issues from Starwood Hotels & Resorts Worldwide, Pitney Bowes Inc. and Texas Eastern Transmission.
"This is rapid-fire but it is too early to say it is a return to normalcy," said Sid Bakst, managing director and portfolio manager at Robeco Weiss Peck & Greer. "It could shut down for a breather any time. This pace cannot continue for the entire month."
Though bond issues more than doubled in August over that seen in the previous year, some companies were still reluctant to raise money in the credit markets where a sharp repricing of risk created volatile and unfriendly conditions for borrowers. The environment has improved in recent days, encouraging more borrowers to test the market.
"When issuance was hard to do, issuers had to wait so now there's a spike," said Tom Ricketts, chief executive of InCapital, which underwrites and sells corporate bonds.
Since it appears the extreme volatility of the past few weeks may be over, Ricketts said, corporate borrowers are "looking at markets now available to them."
Companies are raising money for "assorted reasons" like share buybacks and capital investments, Bakst said, adding that there are a "gamut of issuers willing and able to come to the market."
That said, investors are "not lining up to buy" just yet, MacDonald of Aladdin Capital Management said. "It's nice to see new issues but the question is what level are they coming at?"
Investors are demanding higher premiums on deals to compensate for what has become a riskier market place. This trend toward higher and higher premiums is pressuring some bonds in the secondary market as well.
Performance on newly issued bonds has been "mixed," Bakst said.
Spikes in issuance and lack of direction in risk premiums are likely to continue throughout September, he added.
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