A quick rewind is necessary to put this post in context.
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UK department store chain the John Lewis Partnership on Sunday said it expected to raise £50m by offerings its 75,000 partners and 1.5m partnership card and account card customers the opportunity to invest in a retail bond, reports the FT. It is the first time the company has sought to raise funds in the retail market, said a spokesman. John Lewis is expected to strike a cautious note in its earnings report on Wednesday, despite expectations of a 15% annual increase in profit and a possible rise in staff bonuses. Nick Bubb, analyst at Arden Partners, forecasts that pre-tax profit in the year to Jan 31 will increase from £307m to £352m. Reuters adds that its the five-year fixed-rate bond will launch on Monday.
It’s been a record week for corporate debt issuance in US markets, says Bloomberg — $48.2bn has been sold, eclipsing a previous week high of $46.9bn in May 2009. While General Electric Capital got the largest single offering away, 57 per cent of the week’s issues came from foreign sellers. Looking at investment-grade debt alone, the WSJ estimates that at least $35bn has been sold, making 2011′s market the busiest in this sector since 2010′s first week. There is one caveat to the current optimism, the FT warns: yields on Treasuries are rising at a faster pace than corporate bonds, which may make investors far more selective over the credits on offer.
Companies on both sides of the Atlantic have embarked on an early-year rush to issue debt in an effort to secure financing before any rise in borrowing costs, the FT reports. The surge in bond issuance on Tuesday came amid optimism about the US economy’s growth prospects and corporate earnings. An estimated $35.6bn in dollar-denominated bonds were priced on Tuesday, according to Dealogic. In the US, General Electric’s finance arm led the issuance wave with the sale of $6bn of debt. Europe’s banks also raised more than €7bn ($9bn) in covered bonds – that market’s busiest day in more than a year. On Monday,Warren Buffett’s Berkshire Hathaway had sold the first corporate debt of the year. The $1.5bn bond offering set a positive tone for the dollar markets, the most important source of debt financing for companies and banks around the world.
Can we talk a bit more about the scandal of Basel III allowing banks to give government bonds a zero risk weighting on their books? This time regarding Basel’s liquidity rules.
Actually, can we talk about the related global shortage of AAA-rated assets and what that means for sovereign debt as well? Read more
All hail Standard Chartered’s new synthetic Collateralised Loan Obligation:
2 December 2010, Singapore – Standard Chartered Bank has completed its sixth Collateralised Loan Obligation (CLO), START VI CLO, under its multi-award winning START CLO programme. Read more
Companies from UPS to Time Warner Cable have rushed to lock in the low interest rates still available in the US bond markets, using the money to plug pension fund gaps, buy back shares or build up contingency cash piles, reports the FT. with government bond yields at near-record lows, the amount of money borrowed in the corporate bond markets so far this month has exceeded that of any previous November, according to data provider Dealogic, which said that blue-chip companies with investment grade ratings sold more than $41bn of new bonds in the past two weeks.
Japan’s central bank has announced that it will buy up lower-rated corporate bonds and rescheduled its next monetary policy meeting to just one day after Federal Reserve officials will likely unveil QE in the US, says Bloomberg. The Bank of Japan’s governor said that the meeting date had been changed so that members could discuss buying ETFs and REITs. However, the BoJ has a clear incentive to start easing before the yen’s strength gets out of hand in a US QE environment, according to Reuters. The BoJ meanwhile believes that Japan’s recovery is slowing down even as it claims the country will exit deflation some time in 2011, Nikkei reports.
Corporate America is leaving the flagging US economy behind, the WSJ says. Companies in the S&P 500 saw second-quarter profits increase 38 per cent compared to a year earlier, while all US companies saw a 26.5 per cent rise in post-tax profit over the same period — historic figures for postwar markets, if they aren’t adjusted for inflation. It’s the result of a massive and permanent restructuring wave across the corporate sector, the Journal adds — with the boards of many big companies wary of spending, costs have been cut and refocused, with thousands of jobs laid off or outsourced. The corporate bond boom continues in the meantime, the NYT reports, adding that companies are indeed using the cash to save rather than spend.
Tinned food? Check. Bunker? Check. Emergency smokes? Check.
Rolex watch, Toblerone, fondue kit, cuckoo clock? Check. Read more
Around $51bn in corporate bonds and leveraged loans have entered the debt market in the past two days, with this week looking to be the busiest of the year so far for high-grade corporate issuance, the WSJ reports. The culprit is Planet Zirp, of course — corporates are benefiting from interest rates keeping close to zero, while investors are keen for higher-yielding assets. Allergan issued $650m of bonds at a 3.375 per cent yield this week, for example — the lowest yield for a US corporate since at least 1995. But companies are already pumped with cash, the NYT notes — they’re just borrowing anyway because it’s so cheap.
Goldman Sachs continues to slide down the rankings of banks underwriting corporate bonds, throwing doubt on its bid to reinvent itself as a company adviser, Bloomberg reports. Goldman is now tenth in corporate finance — down from ninth last year, and first in 2003. The bank remains at the top of the mergers and acquisitions league. Goldman is at the same time unlikely to spin off its proprietary trading desk into a hedge fund, FINalternatives notes.
Two global titans — one of fast food and one of the world economy — have teamed up in the debt market. For, McDonalds has become the first foreign corporate to issue a renminbi-denominated bond, reports FT Alphaville. Meanwhile, Beyond Brics reports on the first cross-border treade credit between ICBC and Indonesia’s Huawei to be denominated in yuan, and asks did the RMB just go global? Read more
Why did junk bond issuance reach new heights last week? And why has it nearly reached an annual record high this year?
While yield-hungry investors are probably looking for anything they can get, it seems a few things have happened this year for the stars to have aligned so neatly for junk. Read more
Finally. The moment David Rosenberg has been waiting for…
As the Gluskin Sheff economist stated in his regular Breakfast with Dave note on Wednesday (our emphasis): Read more
Anadarko, the US partner to BP in the oil well at the centre of the Gulf of Mexico spill, sold $2bn in bonds on Monday, highlighting renewed confidence in the sector as well as strong demand for corporate debt in the US, according to the FT. The notes, which will be used to refinance Andarko’s debt, lack protection for creditors against claims stemming from the worst oil spill in US history, Bloomberg reports.
Oh look — another investment bank pumping a global M&A recovery.
But we liked this note — from Credit Suisse on Wednesday — because the evidence they laid out for more M&A really suggests something much more interesting: that any revival in deal-making will be quick, dirty — and borne aloft on fear of deflation. Read more
Credit spreads for a broad range of companies in both the US and Europe are expected to widen over the next three months amid concern about the global economic recovery and the possibility of a sovereign default, according to a survey of credit portfolio managers at financial institutions around the world, the FT reports. The survey by the International Association of Credit Portfolio Managers contrasts with strongly positive sentiment found in the previous one, conducted at the end of March, Reuters says.
Here’s an interesting tidbit to trot out in the debate over the shape of the US recovery.
The Federal Reserve has been quick to highlight the speed and intensity of its policy movements, most notably its quantitative easing and interest rates. This, we are often told, is what will keep the US away from a Japan-style Lost Decade, or even perhaps, save it from double-dip doom. Read more
BP has the most shorted bond among US investment grade corporate issuers, and, unusually, more of its bonds are being borrowed for shorting than its shares, the FT says. The most heavily borrowed US dollar denominated investment grade corporate bond is a 4.75 per cent 2019 bond issue from BP through its Capital Markets financing division, according to Data Explorers. According to them, 24 per cent of the $1bn issue is on loan, with most, if not all, of this borrowing being done to cover short sales.
Emerging market corporate and sovereign bonds have been issued at a record pace so far this year in a sign of growing investor interest in opportunities outside the developed world following the financial crisis, the FT says. Governments and companies have raised almost $300bn to date, a 10 per cent increase on the same period in 2009, which itself led to a record year, according to data from Thomson Reuters.