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JPMorgan CEO: U.S. Debt Default Would Be A ‘Moral Disaster’

by Ryan McCarthy on May 20, 2011

Huffington Post…

DENVER — It would be a “moral disaster” if the United States were to default on its debts and become unable to pay its obligations, JPMorgan Chase & Co. CEO Jamie Dimon said at an appearance in Colorado Thursday evening. The U.S. is the financial linchpin of the world, and the economic effects of the U.S. defaulting could be “potentially catastrophic,” he said at a dinner for the University of Colorado Denver Business School. “It will dwarf Lehman,” Dimon said, referring to the 2008 collapse of the investment bank Lehman Brothers, which contributed to the beginning of a global financial crisis. Dimon’s comments came in response to a question about the federal deficit from moderator Tom Petrie, a vice chairman of Bank of America Merrill Lynch. Congress is debating raising the country’s $14.3 trillion borrowing limit. White House officials say the government will run out of cash to pay expenses Aug. 2, but lawmakers have said they want spending cuts before they agree to raise the debt ceiling. Dimon got a standing ovation at the dinner, a marked contrast to JPMorgan’s annual meeting in Ohio on Tuesday, when more than 400 demonstrators shouted outside. The protests were organized by a coalition of clergy and unions, which is pushing for action and legislation around banking practices that hurt troubled homeowners. Along with all the major banks in the country, JPMorgan Chase has been criticized for its handling of mortgage foreclosures. After Petrie noted The New York Times recently called him America’s least hated banker, Dimon quipped he never expected to be in a business where he’d be on the receiving end of so much anger. “Our people work hard, they give a damn, they help their communities,” he said. During the crisis, JPMorgan Chase bought Bear Stearns Cos. and what was left of Washington Mutual Inc. after it failed. It also accepted aid from the federal government’s Troubled Asset Relief Program, even though it didn’t need to, Dimon said. Dimon has said government officials told him that taking the aid would boost the health of the financial system and reduce the stigma of only a few banks accepting aid. At the time, Dimon called TARP money a scarlet letter. Once JPMorgan repaid the aid, Dimon said he was tempted to include a note to Treasury Secretary Timothy Geithner that said, “P.S. During the whole time you were lending us $25 billion, we were loaning you $200 billion” in the form of Treasury instruments the company holds.

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JPMorgan CEO: U.S. Debt Default Would Be A ‘Moral Disaster’

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Jobless Claims Down As Labor Market Could Be Picking Up

by on May 19, 2011

Huffington Post…

WASHINGTON – The number of Americans filing new claims for unemployment benefits fell more than expected last week, offering hope the labor market recovery remains on track. Initial claims for state unemployment benefits fell 29,000 to a seasonally adjusted 409,000, the Labor Department said on Thursday, continuing to unwind the prior weeks’ spike. Economists polled by Reuters had forecast claims dropping to 420,000. The prior week’s figure was revised up to 438,000 from the previously reported 434,000. “Clearly what it shows is an ongoing healing in the labor market. The recent data have been skewed by special factors like the Easter holiday and supply chain issues coming out of Japan,” said Neil Dutta, a U.S. economist at Bank of America Merrill Lynch in New York. “Some of the increase in jobless claims have been organic due to the slowing in the economy.” U.S. stock index futures extended gains on the report, while prices for government debt widened losses. The dollar rose against the yen. The four-week moving average of unemployment claims, a better measure of underlying trends, rose 1,250 to 439,000 – the highest level since mid-November. The data covers the survey period for the government’s closely watched employment report for May, which will be released early next month. The recent jump in claims, blamed on auto layoffs because of supply chain disruptions from March’s Japanese earthquake and problems with adjusting data for seasonal variations, had raised fears of a pull back in the pace of job creation. Employers added 244,000 jobs in April, the most in 11 months. However, the unemployment rate rose to 9 percent from 8.8 percent in March. Despite the fall, claims held above the 400,000 mark for a sixth straight week, indicating payroll growth will only be gradual. The four-week average has now been above that level, which is normally associated with stable job growth, for four weeks in a row. A Labor Department official said only one state or territory, the Virgin Islands, had been estimated, indicating the report was largely clear of distortions. The number of people still receiving benefits under regular state programs after an initial week of aid fell 81,000 to 3.71 million in the week ended May 7. Economists had expected so-called continuing claims to fall to 3.72 million from a previously reported 3.76 million. The number of people on emergency unemployment benefits increased 53,398 to 3.47 million in the week ended April 30, the latest week for which data is available. A total of 7.94 million people were claiming unemployment benefits during that period under all programs. (Reporting by Lucia Mutikani; Editing by Neil Stempleman) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Jobless Claims Down As Labor Market Could Be Picking Up

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Video: Meyer Says Fuel Prices Will Be Drag on Consumer Spending

May 13, 2011

May 13 (Bloomberg) — Michelle Meyer, a senior economist at Bank of America Merrill Lynch, talks about the impact of food and energy prices on consumer spending, and the outlook for inflation and Federal Reserve monetary policy. Meyer talks with Mark Crumpton on Bloomberg Television’s “Bottom Line.” (Source: Bloomberg)

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Goldman, Citigroup Among Large Banks Targeted By EU Over Alleged Collusion

April 29, 2011

BRUSSELS — The EU’s competition watchdog is investigating the practices of some the world’s biggest banks, as well as a market data firm and a clearing house, in the market for credit default swaps. The two probes home in on a market that has come under fire for lacking transparency and allegedly worsening debt market turmoil during the financial crisis. While the investigations focus on competition issues, they accompany a broader regulatory crackdown in Europe on credit default swaps and other derivatives. The European Commission said it has “indications” that the 16 banks acting as dealers in the CDS market – practically all the big players in global investment banking – give essential information on pricing and other daily activities only to Markit, the leading financial data provider for that market. Such preferential treatment “could be the consequence of collusion between them or an abuse of a possible collective dominance” and could lock other data providers out of the CDS business, the Commission said. The 16 firms targeted are JP Morgan, Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, Morgan Stanley, Royal Bank of Scotland, UBS, Wells Fargo, Credit Agricole and Societe Generale. Credit default swaps were invented to help investors insure themselves against the default of a company or a state whose bonds they hold. However, they have also been used for speculation and the profits some banks and hedge funds make from such transactions have come under scrutiny during the financial crisis. “CDS play a useful role for financial markets and for the economy,” said Joaquin Almunia, the EU’s competition commissioner, said in a statement. “Recent developments have shown, however, that the trading of this asset class suffers a number of inefficiencies that cannot be solved through regulation alone.” In a second case, the Commission is also investigating whether nine of those banks received preferential treatment – such as lower fees and profit-sharing deals – from ICE Clear Europe, the biggest CDS clearing house in the EU. “The effects of these agreements could be that other clearing houses have difficulties successfully entering the market and that other CDS players have no real choice where to clear their transactions,” the Commission said. The banks targeted in the second probe are Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and UBS. Almunia said he hoped that the “investigation will contribute to a better functioning of financial markets and, therefore, to a more sustainable recovery.”

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Japan Government To Reportedly Take Partial Control Of Nuclear Plant Owner

April 1, 2011

March 31, 2011 10:40:09 PM TOKYO (Reuters) – TOKYO, April 1 (Reuters) – Japan’s government plans to take control of Tokyo Electric Power Co , the operator of a stricken nuclear power plant, by injecting public funds, the Mainichi newspaper said on Friday. But the government is unlikely to take more than a 50 percent stake in the company, an unnamed government official was quoted by the daily as saying. “If the stake goes over 50 percent, it will be nationalized. But that’s not what we are considering,” the official was quoted by the paper as saying. The company, also known as TEPCO, has come under fire for its handling of the emergency at its Fukushima Daichi nuclear complex, triggered by a March 11 earthquake and tsunami that left more than 27,500 people dead or missing. Mainichi quoted an unnamed government official as saying: “It will be a type of injection that will allow the government to have a certain level of (management) involvement.” A series of missteps and mistakes, combined with scant signs of leadership, have further undermined confidence in the company. Poor communication has led to some heated exchanges in media conferences as journalists demanded information. TEPCO could face compensation claims topping $130 billion if Japan’s worst nuclear crisis dragged on, Bank of America-Merrill Lynch estimated this week, further fuelling expectations Japan’s government will step in to save Asia’s largest utility. Investor concern about the future of Tokyo Electric mounted after its president, Masataka Shimizu, was admitted to hospital and the company said on Wednesday that 2 trillion yen ($24 billion) in emergency loans from Japan’s major banks would not cover its mounting costs. Liabilities for compensation claims alone could be up to 11 trillion yen ($133 billion) — nearly four times TEPCO’s equity — if the nuclear crisis drags on for two years, an analyst at Bank of America Merrill Lynch wrote in a report. TEPCO shares are down almost 80 percent since the disaster. Bank of America-Merrill Lynch said shareholders were very likely to take a big hit and a rapid resolution of the crisis was the only way to keep costs down. If the situation can be turned around within the next two months, compensation costs may be less than 1 trillion yen. Costs will rise to 3 trillion yen if it drags on for six months, analyst Yusuke Ueda wrote. Experts, however, say a final resolution of the nuclear disaster is likely to take decades and there could be many further setbacks. TEPCO could burn through 2 trillion yen in about a year, said CLSA equity analyst Penn Bowers, as it pays extra for fuel to run its thermal plants, among other costs. TEPCO has around $91 billion in debt including some $64 billion in bonds. That excludes about $24 billion recently secured in loans from domestic lenders. At the end of December, TEPCO had equity of about $35 billion, its accounts show. (Reporting by Yoko Nishikawa, Kazunori Takada and Taiga Uranaka; Writing by Dean Yates; Editing by Alex Richardson) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Video: Tenengauzer Says Egypt’s Bond Market Poses Currency Risk

February 14, 2011

Feb. 14 (Bloomberg) — Daniel Tenengauzer, head of emerging-market currency and rates strategy at Bank of America Merrill Lynch, discusses the impact of the protests in Egypt on emerging market investments and the outlook for the country’s currency. Tenengauzer talks with Betty Liu, Sheila Dharmarajan and Jon Erlichman on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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Former Treasury Advisor Starting Company That Could Help Small Banks

January 20, 2011

In an effort to restore a crucial segment of the economy that was wounded in the financial crisis, a former government official is starting a company aimed at helping small banks. Lee Sachs, a former advisor in the Treasury department, is teaming with John Delaney, former chief executive of the bank CapitalSource, to launch a firm designed to allow small banks to make loans that otherwise would have been out of their league, the Wall Street Journal reports. By giving small banks opportunities to extend portions of big loans, the firm, called BancAlliance, will attempt to help revitalize the small bank industry. Focusing on banks with assets between $200 million and $10 billion, BancAlliance will serve as a middleman, finding big loans and then allowing banks to underwrite pieces of them, the WSJ says. By collaborating, these banks could, in theory, compete with the giants of the banking industry. Small banks have traditionally shared a close relationship with small businesses, making small lenders a key ingredient in a healthy economy. Small businesses crave the personal attention a small bank can provide. Especially now, with many banks shell-shocked from the crisis, small business owners, who might not have much concrete proof of reliability, can benefit from working with bank executives who trust them. Small businesses contribute about 70 percent of the nation’s jobs, according to the Obama administration’s estimate. New businesses , which often rely on bank loans to get going, contribute about 20 percent of new jobs, according to a recent Bank of America Merrill Lynch study. The health of small banks, then, is essential in a functioning economy. Late last year, the Federal Deposit Insurance Corp., which currently guarantees the savings parked at about 7,665 American banks, revealed that the number of banks it considers troubled swelled to 860 from 829 during the summer months. The vast majority of these additions to the “problem” list are small banks. In theory, BancAlliance would help strengthen small banks by giving them access to loans outside their traditional sphere. While small banks typically have much of their assets tied to the local economy — in commercial real estate, for instance — this new company would theoretically let them expand their reach. “This is designed to give large-bank capabilities to small banks,” Sachs said, according to the WSJ . It remains to be seen, though, whether BancAlliance would spur lending to small businesses. Sachs is a Treasury veteran, having served as assistant secretary under Robert Rubin, during Clinton’s second term. Under Rubin’s watch, lawmakers rolled back Depression-era regulation, paving the way for banks to grow larger, a development that experts say contributed to the financial crisis less than a decade later.

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AEGON BoA Merrill Team Up For Securitization

January 3, 2011

AEGON USA Realty Advisors and Bank of America Merrill Lynch have teamed up to give the investment bank a new source of lending opportunities for its securitization program

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Video: Hatzius Says U.S. Home Prices to Fall 5%, Bottom in 2011

December 31, 2010

Dec. 31 (Bloomberg) — Jan Hatzius, chief U.S. economist at Goldman Sachs Group, and Ethan Harris, head of developed-markets economic research at Bank of America Merrill Lynch, talk about the outlook for the U.S. economy in 2011. They speak with Tom Keene on Bloomberg Television’s “Surveillance Midday.” (Source: Bloomberg)

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Video: Harris Says Housing `Weight Around the Neck’ of Recovery

November 24, 2010

Nov. 24 (Bloomberg) — Ethan Harris, head of developed-markets economic research at Bank of America Merrill Lynch, and Bloomberg economist Joseph Brusuelas, talk about the U.S. labor and housing markets. Harris and Brusuelas, speaking with Matt Miller on Bloomberg Television’s “Street Smart,” also discuss the Federal Reserve’s policy of quantitative easing. (Source: Bloomberg)

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Video: BoA’s Wraith Sees BOE Delaying Bond Purchases Until 2011

October 26, 2010

Oct. 26 (Bloomberg) — John Wraith, a fixed-income strategist at Bank of America Merrill Lynch, talks about the outlook for third-quarter U.K. gross domestic product and for further bond purchases by the Bank of England. He speaks with Mark Barton on Bloomberg Television’s “Countdown.”

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Video: Woo Says China Domestic Policy Will Override Yuan Issue: Video

October 21, 2010

Oct. 21 (Bloomberg) — David Woo, head of global rates and currency research at Bank of America Merrill Lynch in New York, talks about China’s raising of borrowing costs for the first time since 2007, and its implications for the nation’s currency policy. The yuan fell the most in two months on speculation China’s rate increase alleviates the need for currency gains to combat inflation. Woo also discusses Federal Reserve monetary policy and the dollar. He speaks with Rishaad Salamat from New York on Bloomberg Television’s “First Up.” (Source: Bloomberg)

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Video: Tenengauzer Dismisses Currency War Threats as Posturing: Video

September 28, 2010

Sept. 28 (Bloomberg) — Daniel Tenengauzer, head of emerging-market currency and rates strategy at Bank of America Merrill Lynch, talks about the proliferation of nations using devaluation to solve economic woes. Brazilian Finance Minister Guido Mantega said yesterday that a “currency war” is underway. Tenengauzer speaks with Erik Schatzker on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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Video: DeSanctis Sees `Plenty of Opportunities’ in Small Caps: Video

August 30, 2010

Aug. 31 (Bloomberg) — Steven G. DeSanctis, a strategist at Bank of America Merrill Lynch, talks about the outlook for U.S. small-cap stocks. DeSanctis talks with Susan Li on Bloomberg Television. (Source: Bloomberg)

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Video: Wraith Says European Bond Yields Show Weak Growth Signs

August 5, 2010

Aug. 6 (Bloomberg) — John Wraith, a fixed-income strategist at Bank of America Merrill Lynch, talks about European bond markets and the region’s growth prospects. He speaks with Linzie Janis on Bloomberg Television’s “Start Up.”

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Video: Bank of America’s Bianco Discusses U.S. Stock Outlook: Video

August 4, 2010

Aug. 4 (Bloomberg) — David Bianco, head of U.S. equity strategy at Bank of America Merrill Lynch, talks about the outlook for U.S. stocks. Bianco talks with Matt Miller on Bloomberg Television’s “Street Smart.” (This is an excerpt of the full interview. Source: Bloomberg)

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Video: Wraith Says More ECB Bond Purchases May Be `Inevitable’

July 9, 2010

July 9 (Bloomberg) — John Wraith, U.K. fixed-income strategist at Bank of America Merrill Lynch, talks about the European bank stress tests and the prospects for the European Central Bank increasing its bond purchases. Wraith speaks with Maryam Nemazee on Bloomberg Television’s “Start Up.”

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Video: Tenengauzer Expects Euro to Trade Below Its `Fair Value’: Video

July 6, 2010

June 6 (Bloomberg) — Daniel Tenengauzer, head of emerging-market currency and rates strategy at Bank of America Merrill Lynch, talks about the outlook of the currency market. Tenengauzer talks with Scarlet Fu on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

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Bank of America Debt Sale Shows Contagion Ebbs Credit Markets

June 18, 2010

By Tim Catts June 18 (Bloomberg) — Bank of America Corp. , JPMorgan Chase & Co. and HSBC Holdings Plc raised $7.65 billion in the bond market as investors grow more confident Europe’s debt crisis will be contained, averting another credit freeze for lenders. Bank of America’s $3 billion offering was its first benchmark issue of dollar-denominated 10-year notes in a year, according to data compiled by Bloomberg. New York-based JPMorgan boosted its sale by 25 percent to $1.25 billion as relative yields on U.S. bank debt fell for a fourth day, the longest streak since March, while HSBC raised $3.4 billion in the biggest global issue of undated dollar notes since October 2008. The banks’ offerings come as Spain sold 3.5 billion euros ($4.3 billion) of bonds yesterday and announced a plan today to issue new 10-year notes via banks, easing concern the nation will struggle to finance looming debt maturities. Even as potential regulations loom, U.S. banks are taking advantage of “very attractive financing rates and a receptive marketplace,” said Wells Fargo Funds Management’s James Kochan . “There’s a lot less fear among investors than was true a week ago or a month ago,” said Kochan, who helps oversee $179 billion as chief fixed-income strategist for the firm in Menomonee Falls, Wisconsin. “Things are calming down a bit in world markets.” Deutsche Bank AG , Germany’s biggest bank, issued 1 billion euros of so-called lower Tier 2 bonds that were priced to yield 210 basis points, or 2.1 percentage points, over swaps, according to a banker involved in the deal. Credit Suisse Group AG added 550 million euros to its existing 4.75 percent bonds due August 2019, according to data compiled by Bloomberg. The additional notes yield 180 basis points more than similar- maturity German debt. HSBC Sale The 5.625 percent, 10-year issue from Charlotte, North Carolina-based Bank of America priced to yield 248 basis points more than Treasuries, Bloomberg data show. A benchmark offering is typically at least $500 million. JPMorgan’s 3.4 percent, five-year notes pay a spread of 145 basis points. HSBC, Europe’s largest bank, sold the perpetual securities that are callable after 5.5 years with a coupon of 8 percent today, at the lower end of the marketing range of 8 percent to 8.125 percent, according to a person with knowledge of the deal. The issue was the largest of its type since Credit Suisse sold $3.5 billion of 11 percent notes in October 2008, according to data compiled by Bloomberg. Ally Bank Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of government debt fell 1 basis point to 197 basis points, Bank of America Merrill Lynch’s Global Broad Market Corporate Index shows. Yields averaged 4.068 percent. GMAC Inc.’s Ally Bank boosted the size of its offering of bonds backed by auto loans to $1.2 billion from $792.3 million, according to a person familiar with the transaction. The largest top-rated portion, a $448 million slice maturing in about 2.2 years, will yield 25 basis points more than the benchmark swap rate, said the person, who declined to be identified because the terms aren’t public. Benchmark indexes of corporate credit risk in the U.S. and Europe fell. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 3.3 basis points to a mid-price of 110.25 basis points as of 12:06 p.m. in New York, the lowest since May 31, according to Markit Group Ltd. In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 4.7 basis points to 117.4, Markit prices show, the lowest since May 18. Bondholder Protection The indexes typically fall as investor confidence improves and rise as it deteriorates. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Bank of America and JPMorgan’s offerings led $7.35 billion of U.S. corporate bond issuance, the busiest day since April 21, when $12.3 billion was sold, Bloomberg data show. That tally of straight bond sales doesn’t include HSBC’s perpetual notes issue. The offerings from the two largest U.S. banks by assets and Europe’s No. 1 lender follow a $750 million sale by Radnor, Pennsylvania-based Lincoln National Corp. on June 15 and a $1 billion offering June 16 from Prudential Financial Inc. of Newark, New Jersey. ‘Positive Tone’ “Both JPMorgan and Bank of America are coming on the back of a couple good days of a positive tone in the market,” said Brian Machan , a money manager at Aviva Investors North America in Des Moines, Iowa. “Seeing Prudential do well and Lincoln National come earlier this week set the precedent.” Spreads on financial company bonds fell to 277 basis points, the lowest in two weeks, according to Bank of America Merrill Lynch’s U.S. Corporates, Banks index. Relative yields reached 286 basis points on June 11, the highest since October. Banks are making the most of investor demand before regulatory changes that could reduce profitability, said Scott MacDonald , head of credit and economics research at Aladdin Capital Holdings LLC in Stamford, Connecticut, which oversees $12.5 billion. Congress is debating sweeping changes to financial regulations that may hamper bank profits after the collapse of the housing market caused the worst recession since the 1930s and the loss of more than 8 million U.S. jobs. ‘Floodgates Have Opened’ “The floodgates have opened and banks are taking advantage,” MacDonald said. “From a strategic standpoint, they’d rather come in ahead of the curve than play catch up.” Spain sold its debt at an average yield of 4.864 percent, less than the 5.04 percent its 10-year bonds traded at yesterday before the sale. Demand was 1.89 times the amount on offer. It also sold 479.2 million euros of 30-year debt at 5.908 percent, and the bid -to-cover ratio was 2.45, higher than the 1.38 at the previous sale on March 18. Spain’s finance ministry said today the government will sell bonds in the third quarter through a group of banks, without naming the managers of the issue. It also announced auctions of debt with maturities ranging from 2015 to 2041. “The strong demand for Spanish bonds should help restore confidence,” said Ciaran O’Hagan , fixed income strategist at Societe Generale in Paris. “The good demand was only possible after considerable cheapening of Spanish bonds over the past days.” To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net

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Bank of America, JPMorgan Debt Sales Show Contagion Ebbing Credit Markets

June 18, 2010

By Tim Catts June 18 (Bloomberg) — Bank of America Corp. , JPMorgan Chase & Co. and HSBC Holdings Plc raised $7.65 billion in the bond market as investors grow more confident Europe’s debt crisis will be contained, averting another credit freeze for lenders. Bank of America’s $3 billion offering was its first benchmark issue of dollar-denominated 10-year notes in a year, according to data compiled by Bloomberg. New York-based JPMorgan boosted its sale by 25 percent to $1.25 billion as relative yields on U.S. bank debt fell for a fourth day, the longest streak since March, while HSBC raised $3.4 billion in the biggest global issue of undated dollar notes since October 2008. The banks’ offerings come as Spain sold 3.5 billion euros ($4.3 billion) of bonds yesterday and announced a plan today to issue new 10-year notes via banks, easing concern the nation will struggle to finance looming debt maturities. Even as potential regulations loom, U.S. banks are taking advantage of “very attractive financing rates and a receptive marketplace,” said Wells Fargo Funds Management’s James Kochan . “There’s a lot less fear among investors than was true a week ago or a month ago,” said Kochan, who helps oversee $179 billion as chief fixed-income strategist for the firm in Menomonee Falls, Wisconsin. “Things are calming down a bit in world markets.” Deutsche Bank AG , Germany’s biggest bank, issued 1 billion euros of so-called lower Tier 2 bonds that were priced to yield 210 basis points, or 2.1 percentage points, over swaps, according to a banker involved in the deal. Credit Suisse Group AG added 550 million euros to its existing 4.75 percent bonds due August 2019, according to data compiled by Bloomberg. The additional notes yield 180 basis points more than similar- maturity German debt. Spread to Treasuries The 5.625 percent, 10-year issue from Charlotte, North Carolina-based Bank of America priced to yield 248 basis points more than Treasuries, Bloomberg data show. A benchmark offering is typically at least $500 million. JPMorgan’s 3.4 percent, five-year notes pay a spread of 145 basis points. HSBC, Europe’s largest bank, sold the perpetual securities that are callable after 5 1/2 years with a coupon of 8 percent today, at the lower end of the marketing range of 8 percent to 8.125 percent, according to a person with knowledge of the deal. The issue was the largest of its type since Credit Suisse sold $3.5 billion of 11 percent notes in October 2008, according to data compiled by Bloomberg. Corporate Spreads Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of government debt fell 1 basis point to 197 basis points, Bank of America Merrill Lynch’s Global Broad Market Corporate Index shows. Yields averaged 4.068 percent. U.S. commercial paper outstanding rose the most in seven weeks. The market for short-term IOUs climbed $18.8 billion to $1.08 trillion in the week ended June 16, the Federal Reserve said yesterday on its website . That’s the biggest increase since the week ended April 28, when commercial paper outstanding gained $32 billion. Foreign financial commercial paper rose for the second week, adding $3.3 billion to $166.8 billion. General Electric Co. ’s finance unit sold $850 million of bonds backed by credit-card payments after boosting the offering’s size from $500 million. The top-rated securities maturing in about three years yield 75 basis points more than the benchmark swap rate, according to a person familiar with the offering, who declined to be identified because the terms aren’t public. Top-Rated Securities Securities rated AAA and backed by credit-card payments yield about 72 basis points more than similar-maturity Treasuries, compared with a low for the year of 53 basis points over benchmarks on April 21, according to a Bank of America Merrill Lynch index. The Federal Home Loan Bank system, the government-chartered cooperatives owned by U.S. financial companies, sold $3 billion of two-year global notes. The securities yield 0.935 percent, or 22.5 basis points more than similar-maturity Treasuries, according to an e-mailed statement yesterday from the system’s finance office in Reston, Virginia. It sold two-year bonds at a spread of 21 basis points in March. Leveraged-loan prices rose for a fourth day, with the S&P/LSTA US Leveraged Loan 100 Index gaining 0.17 cent to 88.67 cents on the dollar, the biggest rise since May 26. The index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, is poised for its first weekly gain since the period ended May 14. ‘Serious’ Losses’ Financial institutions in the U.S. won’t face “serious” losses if speculative-grade borrowers fail to refinance maturing loans, Standard & Poor’s said. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P. Banks reduced the amount of leveraged loans they held beginning in 2007 by selling them to institutional investors and asset management firms, analysts led by David Tesher in New York said yesterday in a report. About $973 billion of high-yield debt will mature between 2011 and 2014, including $521 billion of loans, they said. BP Plc , the target of more than 220 lawsuits over the Gulf of Mexico oil spill, is seeking to borrow at least $5 billion to meet compensation payments, according to two bankers approached by the company. BP Credit Lines BP has asked banks for one-year credit lines, one of the people said. It’s arranging the transactions individually with lenders, said the people, who declined to be identified because the talks are private. The financing is in addition to London- based BP’s $10.5 billion of undrawn lines, they said. BP spokeswoman Sheila Williams declined to comment. The cost of protecting BP debt from default fell for a second day after the company slashed the $10 billion-a-year dividend, agreed to create an escrow fund to pay damages and had Chief Executive Officer Tony Haywood appear before U.S. lawmakers to account for the biggest oil spill in the nation’s history. Swaps insuring BP debt for a year dropped 13 basis points to 618 after climbing to over 1,000 this week, a level considered distressed, according to CMA DataVision. Five-year contracts were little changed at 466.5 basis points. An index that investors use to hedge against losses on corporate debt or to speculate on creditworthiness fell today and in the week. Credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated European companies dropped 1.6 basis points to 541.8, according to Markit Group Ltd. That’s the lowest level in a month and down from 597.5 basis points on June 11, JPMorgan prices show. Credit Swaps The index typically falls as investor confidence improves and rises as it deteriorates. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. In emerging markets, the extra yield investors demand to own bonds relative to government debt rose for the first time this week. Spreads widened 3 basis points to 317 basis points, according to JPMorgan’s Emerging Market Bond index. Bank of America and JPMorgan’s offerings led $7.35 billion of U.S. corporate bond issuance, the busiest day since April 21, when $12.3 billion was sold, Bloomberg data show. That tally of straight bond sales doesn’t include HSBC’s perpetual notes issue. The offerings from the two largest U.S. banks by assets and Europe’s No. 1 lender follow a $750 million sale by Radnor, Pennsylvania-based Lincoln National Corp. on June 15 and a $1 billion offering June 16 from Prudential Financial Inc. of Newark, New Jersey. ‘Couple Good Days’ “Both JPMorgan and Bank of America are coming on the back of a couple good days of a positive tone in the market,” said Brian Machan , a money manager at Aviva Investors North America in Des Moines, Iowa. “Seeing Prudential do well and Lincoln National come earlier this week set the precedent.” Spreads on financial company bonds fell to 277 basis points, the lowest in two weeks, according to Bank of America Merrill Lynch’s U.S. Corporates, Banks index. Relative yields reached 286 basis points on June 11, the highest since October. Banks are making the most of investor demand before regulatory changes that could reduce profitability, said Scott MacDonald , head of credit and economics research at Aladdin Capital Holdings LLC in Stamford, Connecticut, which oversees $12.5 billion. Bank Regulation Congress is debating sweeping changes to financial regulations that may hamper bank profits after the collapse of the housing market caused the worst recession since the 1930s and the loss of more than 8 million U.S. jobs. “The floodgates have opened and banks are taking advantage,” MacDonald said. “From a strategic standpoint, they’d rather come in ahead of the curve than play catch up.” Spain sold its debt at an average yield of 4.864 percent, less than the 5.04 percent its 10-year bonds traded at yesterday before the sale. Demand was 1.89 times the amount on offer. It also sold 479.2 million euros of 30-year debt at 5.908 percent, and the bid -to-cover ratio was 2.45, higher than the 1.38 at the previous sale on March 18. Spain’s finance ministry said today the government will sell bonds in the third quarter through a group of banks, without naming the managers of the issue. It also announced auctions of debt with maturities ranging from 2015 to 2041. “The strong demand for Spanish bonds should help restore confidence,” said Ciaran O’Hagan , fixed income strategist at Societe Generale in Paris. “The good demand was only possible after considerable cheapening of Spanish bonds over the past days.” To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net

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Australia Utilities Scale Debt Wall as Economy Trumps MBIA Subprime Fall

June 17, 2010

By Sarah McDonald June 18 (Bloomberg) — Bond prices show the pace of Australia’s economic growth may help infrastructure and utility companies to refinance $13 billion of debt without top credit ratings they once bought from insurers such as MBIA Inc. Envestra Ltd. , ElectraNet Ltd. and five more firms raised $2.3 billion from bonds this year, up from $140 million in 2009, according to data compiled by Bloomberg. Brisbane Airport Corp. has A$350 million ($304 million) of MBIA-backed notes due on June 30, while SP AusNet has A$185 million of bonds insured by a unit of Ambac Financial Group Inc. due in September. The nation’s central bank has led Group of 20 policymakers in increasing the benchmark cash rate six times since October on surging Asian demand for commodities and a jobs boom that has pushed down unemployment to around half that of the U.S. and Europe. The extra yield investors demand to own Australian utility debt instead of government bonds has fallen 52 basis points to 206 basis points this year while spreads for firms in the industry widened globally, Bank of America Merrill Lynch indexes show. “Investors are buying into an economy that outperformed the world through the financial crisis,” said Brad Scott , director of debt capital markets at Australia & New Zealand Banking Group Ltd. in Sydney. “Many recognize Australia is a far more attractive place to invest than previously given credit.” Infrastructure and utility firms were Australia’s biggest users of insurers to sell cheaper, longer-dated debt until MBIA and Ambac were stripped of their top ratings in 2008 amid losses on notes backed by subprime mortgages. Since then five straight quarters of growth in the country’s A$1.2 trillion economy have bolstered corporate profits, attracting investors willing to accept lower credit rankings and greater risk. U.S. Placements Investors “show strong appetite for names out of the region,” Lori Pollicino , an executive director of debt capital market private placements at JPMorgan Securities Inc. in New York, said in an e-mailed response to questions. Australian utility companies’ spreads will “modestly tighten throughout the remainder of 2010.” Between 2000 and 2006 Brisbane Airport paid spreads of between 100 basis points and 130 basis points including fees on five bond sales backed by insurers, or so-called monolines, Chief Financial Officer Tim Rothwell said in a telephone interview. While new debt is “certainly going to cost more than it did a few years ago, it’s come down from the very high margins of late 2008 and early 2009” when the airport was told it would have to pay as much as 600 basis points, Rothwell said. Miami Visit The owner of the nation’s third-busiest airport aims to pay about 200 basis points on a sale by early 2011, according to Rothwell, who was “pleasantly surprised” at U.S. interest in Australian bonds when he visited Miami last year. A basis point is 0.01 percentage point. SP AusNet, which manages a A$6.3 billion electricity and gas network and is rated A- by Standard & Poor’s, has sold bonds denominated in Swiss francs, Hong Kong dollars and Australian dollars since February. The company’s Ambac-insured notes yielded 45 basis points more than the bank bill swap rate when they were issued in 2000, according to Bloomberg data, which doesn’t show the insurer’s fee. SP AusNet, based in Melbourne, priced A$300 million of bonds to yield 160 basis points more than the swap rate in March. As companies seek to develop relationships with investors now they’re refinancing without monoline support, Australia’s economic strength is proving to be a “positive factor” in negotiations, SP AusNet Treasurer Alastair Watson said in an interview. Concentration Risk Airports, utilities and infrastructure-related issuers have A$15 billion of debt due by the end of 2011, according to Moody’s Investors Service, while S&P says utilities must refinance a third of their outstanding debt next year. S&P said in a March 5 report that it’s concerned about the concentration of maturing debt, even though companies are arranging refinancing well before their bonds and loans mature. Investors demanded about 60 basis points of extra yield to hold Australian corporate bonds rather than government debt in June 2006, a Bank of America Merrill Lynch index shows. That spread widened to as much as 433 basis points in April 2009 before shrinking to 212 as of yesterday, the index shows. Bond Returns Australia is the world’s biggest exporter of iron ore and coal, and Chinese demand helped the economy expand 2.7 percent in the first quarter of 2010 from a year earlier. Investors have profited from Australian corporate bonds every year for at least the past 13 years, according to Bank of America Merrill Lynch data, and the notes delivered a 4.18 percent return this year. Adelaide Airport Ltd. bought back A$231.5 million of MBIA- insured bonds in April and issued A$235 million of notes without a third-party guarantee. The new bonds yield 255 basis points more than the bank bill swap rate compared with 49 basis points on the insured notes, excluding MBIA’s fee, Bloomberg data show. United Energy Distribution Pty. Ltd. , which provides electricity to more than 600,000 customers in the state of Victoria, sold $435 million of four- and seven-year notes to U.S. investors in April. The bonds were priced to yield 180 basis points more than similar-maturity Treasuries, according to a person familiar with the transaction. The company, rated Baa2 by Moody’s, paid an 83 basis point spread when it sold $260 million of Ambac-insured notes in 2003, according to Bloomberg data which doesn’t show the insurer’s fees. “While these companies are paying more for their debt now than before the crisis, they’re certainly not alone,” said Michael Bush , Melbourne-based head of credit research at National Australia Bank Ltd. “The market’s so different to what it was three years ago, and all borrowers are affected.” To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net .

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BP Oil Spill Wipes $19 Billion From Value of Energy Bonds Credit Markets

June 13, 2010

By John Glover and Bryan Keogh June 14 (Bloomberg) — The biggest oil spill in U.S. history has wiped about $19 billion from the value of energy company bonds as investors bet that tighter regulation may curb revenue and profits. Debt sold by energy companies worldwide has lost almost 4 percent of its value from this year’s peak on April 27, as potential costs of the Deepwater Horizon oil rig explosion on April 20 mount, according to Bank of America Merrill Lynch’s Global Corporates Energy index. The market value of the index, which contains 805 securities of companies ranging from London- based BP Plc to Anadarko Petroleum Corp. of The Woodlands, Texas, ended June 11 at $510.8 billion. “There are fears in the market of much tighter regulation and concern they’ll have to re-price the risk of fines and cleanup costs,” said Christian Weber , a Munich-based strategist at UniCredit SpA. “The entire sector is under a lot of pressure.” The drop in debt prices has pushed yields to the highest since July relative to government bonds, the Bank of America Merrill Lynch index shows. That means the 50 biggest energy company borrowers may pay an extra $763 million in annual interest to refinance the $80.3 billion of bonds globally coming due through 2012, according to data compiled by Bloomberg. Interest costs are “going to hurt the company directly, because that feeds right into the bottom line,” said James Barnes , money manager at Wyomissing, Pennsylvania-based National Penn Investors Trust Co., where he helps oversee $1 billion in fixed-income assets. “We don’t look at today’s market as a buying opportunity.” Spreads Widen Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than government debt rose for a fourth straight week last week. Corporate bond sales jumped 57 percent from the previous period to about $28 billion, the most in six weeks, according to Bloomberg data. Leveraged- loan prices fell for a fourth week, and emerging-market bonds gained. Corporate bond yield spreads widened 5 basis points last week to 201 basis points, or 2.01 percentage points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The gap has jumped from this year’s low of 142 basis points on April 21. Average yields climbed to 4.1 percent on June 11 from 4.05 percent a week earlier. Company debt has lost 0.23 percent this quarter, after gaining 2.92 percent, including reinvested interest, in the first three months of the year. ‘Double Dip’ “The simple fear is that an economic double-dip will result, given strained financial conditions, the consumer retrenchment that may come in the wake of all the volatility and labor markets that remain slow and prone to stalling,” Riz Hussain and Adam Richmond, credit strategists at New York-based Morgan Stanley, said in a report on June 11. While global bond sales picked up last week, they remain below the record pace of 2009. In the U.S., companies have issued $458.4 billion of debt in 2010, compared with $648.5 billion in the same period of last year, Bloomberg data show. Last week’s sales were capped by Bank of New York Mellon Corp.’s offering of $650 million in five-year notes. The 2.95 percent notes were priced to yield 95 basis points more than similar-maturity Treasuries, Bloomberg data show. The commercial mortgage-backed bond market is starting to show signs of life. JPMorgan Chase & Co. sold $716.3 million of the securities on June 11 in the second offering of the debt this year, said a person familiar with the transaction. The largest top-rated portion, maturing in 4.53 years, yields 140 basis points more than the benchmark swap rate, said the person, who declined to be identified because the terms aren’t public. The AAA rated slice maturing in about 9.53 years yields 165 basis points over the benchmark. Leveraged Loans Leveraged loan prices continued to fall. The S&P/LSTA U.S. Leveraged Loan 100 Index , which tracks the 100 largest dollar- denominated first-lien leveraged loans, declined to 88.22 cents on the dollar on June 11, from 88.93 cents a week earlier. While prices are up 49 percent from Dec. 17, 2008, when the index closed at 59.2 cents, they’re down from this year’s peak of 92.90 cents on April 26. Gentiva Health Services Inc. , the U.S. home-nursing company that’s buying Odyssey HealthCare Inc., may approach investors this week for a retooled $925 million loan package to fund the takeover, according to a person familiar with the transaction. The financing will include a $125 million five-year revolving credit line, a $200 million five-year term loan A and a $600 million six-year term loan B, said the person, who declined to be identified because the deal is private. The company expects to pay a “blended” interest rate of about 7 percent on the facility, said Eric R. Slusser , Gentiva’s chief financial officer. Default Swaps While spreads rose, an indicator of corporate credit risk in the U.S. fell last week. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on company debt or to speculate on creditworthiness, declined 1.8 basis points to 124, according to Markit Group Ltd. The index typically falls when investor confidence improves and rises when it deteriorates. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. The cost of protecting European corporate bonds from default rose for the second week. Credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated companies climbed 8.6 basis points to 597.8, according to CMA DataVision. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 1.7 to 143.6, CMA prices show. Emerging Markets In emerging markets, yield spreads tightened 4 basis points to 328 basis points last week, according to a JPMorgan index. The spread has ranged from this year’s low of 230 on April 15 to a high of 346 on May 20. Barzil’s Hypermarcas SA’s board approved a plan to sell 500 million reais ($276 million) of bonds due in 2014, 2015 and 2016. The consumer-products company hired Banco Bradesco BBI SA, Banco Itau BBA SA, Banco Citibank SA and Banco Santander (Brasil) SA to manage the sale. Energy companies’ bonds are handing investors the biggest losses since a month after Lehman Brothers Holdings Inc. collapsed in September 2008. A team of government scientists said last week that BP’s damaged well in the Gulf of Mexico has been leaking twice as fast as previously estimated. Debt sold by gas, oil and exploration companies has given up 1.17 percent in June, including reinvested interest, following a loss of 1.08 percent in May, according to the Bank of America Merrill Lynch index. A total 34 of the 50 biggest members of the index have underperformed the broader market. Energy bonds are the worst performers globally this month. ‘Wide-Ranging Changes’ “Longer term this incident will stir further wide-ranging changes to the energy industry, its regulators and public attitude toward the energy markets,” fixed-income strategists at JPMorgan led by Eric Beinstein in New York wrote in a June 11 research report. “Changes will likely filter through the industry for years ahead.” BP’s bonds have handed investors a loss of 9.61 percent in June, according to the Bank of America Merrill Lynch Global Corporates Energy index. Anadarko Petroleum Corp., which owns a stake in the leaking well, lost 16.1 percent. For BP, “current levels are pricing in enormous unknowns and seemingly unquantifiable future damage liabilities,” Richard Birrer , an analyst at BNP Paribas SA in London, wrote June 11. “For more risk-averse long-term investors, cash bonds represent compelling value.” BP Bonds BP has $11.2 billion maturing through 2012, and The Hague- based Royal Dutch Shell Plc is second on the list with $10.9 billion due, Bloomberg data show. Notes issued by Transocean Ltd., which leased the oil rig to BP, fell 14.1 percent. Halliburton Co. debt lost 4.84 percent and Rockies Express Pipeline LLC’s securities have a negative return of 2.39 percent. “You’re going to get that regulatory oversight,” said Michael Donelan , who oversees $3.5 billion of bonds at Ryan Labs Inc. in New York. “The government wants to exact its pound of flesh. That’s what the market is pricing in now.” The extra yield investors demand to own U.S. bonds by energy issuers instead of Treasuries has risen 95 basis points since the BP spill to 239 basis points, the highest since July 2009, Bank of America Merrill Lynch index data show. “You’ll see a lot of those spreads tighten” when there’s closure on the BP spill, “whenever that may be,” said Dan Sheppard , a director in fixed-income at Deutsche Bank AG’s Private Wealth Management unit, where he helps oversee $12 billion for the bank in New York. “In the meantime, it’s unprecedented.” To contact the reporters on this story: John Glover in London at johnglover@bloomberg.net ; Bryan Keogh in London at bkeogh4@bloomberg.net .

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Corporate Bond Sales Slump for Seventh Week in U.S., End Drought in Europe

June 11, 2010

By Craig Trudell and Caroline Hyde June 11 (Bloomberg) — U.S. Bancorp , the Minnesota lender, and tobacco company Altria Group Inc. led $7.9 billion of corporate bond sales in the U.S. as issuance fell short of the 2010 average for a seventh straight week. U.S. Bancorp, the sixth-largest U.S. bank by assets, sold $1 billion of three-year debt in its fourth offering this year, according to data compiled by Bloomberg. Marlboro cigarette maker Altria issued $800 million of 5 1/4-year notes as it prepares to repay $775 million of bonds this month. In Europe, companies issued 2.9 billion euros ($3.5 billion) of debt, up from the 2.1 billion euros of sales last week that ended a two- month drought. The extra yield investors demand to own U.S. investment- grade corporate debt instead of Treasuries rose 5 basis points this week to 213 basis points, the highest since Dec. 8, according to the Bank of America Merrill Lynch U.S. Corporate Master Index, while spreads in Europe also widened. Europe’s debt crisis and lower-than-estimated U.S. job growth have fueled skepticism about the global economic recovery, said William Larkin , fixed-income portfolio manager at Cabot Money Management. “You’ve got investors changing their minds very rapidly, and that’s never a great indication of economic health,” said Larkin, who helps oversee $500 million at Salem, Massachusetts- based Cabot. “We have a bond market that’s extremely expensive, and that combination makes people like myself nervous.” Company bond sales rose in Europe, with deals from Caterpillar Inc., the largest maker of construction equipment, and U.K. bus and rail operator National Express Group Plc. Bond Redemptions Issuance climbed as 81 billion euros of securities come due this month, the most so far this year, according to ING Groep NV data. Investors may use some of the money they get back from maturing bonds to buy more securities, driving the first companies to return to the market after issuance plummeted 66 percent to a record-low 14 billion euros in May amid the region’s sovereign debt crisis. “Bond redemptions are forcing cash into the hands of investors and many will be losing patience earning the lower rates” from other investments, said Charles Stephens of Matrix Corporate Capital Ltd. in London. “When faced with a solid investment-grade company like Caterpillar or a high enough premium from a lower-rated issuer like National Express, there will be buyers for the debt.” The number of bonds coming due in Europe will reach 81 billion euros in June, up from 60 billion euros in April. Redemptions for the year are forecast to reach 700.6 billion euros, according to ING. U.S. Sales Overall U.S. company bond sales declined 2 percent and have trailed the average for this year in every week since April 23, according to Bloomberg data. Absolute U.S. bond yields rose to 4.66 percent from 4.51 percent, Bank of America Merrill Lynch index data show. A basis point is 0.01 percentage point. Spreads on high-yield bonds in the U.S. widened 5 basis points to 719 basis points this week, Bank of America Merrill Lynch index data show. They touched 727 on June 8, the highest since Dec. 8. Yields rose to 9.49 percent from 9.33 percent. High-yield, or junk, bonds are those rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s. High-yield U.S. bond sales of $1.2 billion were less than a quarter of this year’s weekly average, Bloomberg data show. Junk issuers are poised to fall short of the $6.8 billion of securities sold in May, the lowest since March 2009. “Lower-grade” corporate bonds are “really cheap,” Dan Fuss , who helps oversee $145 billion of assets as vice chairman of Loomis Sayles & Co., said yesterday in a Bloomberg Television interview. “By being a buyer when there’s a thin market, you can get some reasonable values,” he said. This week’s U.S. corporate bond sales compare with $8.1 billion during the period ended June 4 and a 2010 average of $19.7 billion, Bloomberg data show. “You have to watch what you’re buying and watch the spreads you’re buying at,” said Cabot’s Larkin. “Because if you don’t, it could backfire pretty quickly.” To contact the reporters on this story: Craig Trudell at ctrudell1@bloomberg.net ; Caroline Hyde in London at chyde3@bloomberg.net

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BP Trades as Junk, Credit-Default Swaps Invert Credit Markets

June 10, 2010

By John Detrixhe and Shannon D. Harrington June 10 (Bloomberg) — BP Plc bonds and credit-default swaps are trading as if the energy company has lost its investment-grade rating as costs mount from the worst oil spill in U.S. history. BP’s $3 billion of 5.25 percent notes due in 2013 fell as low as a record 89.94 cents yesterday, pushing the yield to 7.57 percentage points more than Treasuries. The spread compares with an average of 7.26 percentage points for junk bonds, Bank of America Merrill Lynch indexes show. The cost to protect $10 million of BP debt for a year with credit-default swaps almost doubled to $512,000, according to CMA DataVision. It was $29,000 on April 30. “That’s just pure out panic,” said Michael Donelan , who oversees $3.5 billion of bonds at Ryan Labs Inc. in New York. “That’s like, ‘Get me out of here now.’ What the market is pricing in now is increased regulatory oversight and heavy, heavy punitive damages.” Debt investors are losing confidence in London-based BP as the company fails to contain the oil leak in the Gulf of Mexico. BP said June 7 it has spent $1.25 billion so far, or about $27 million a day, related to the accident. Credit Suisse Group AG estimated the total cost may reach $37 billion. Credit-default swaps on BP implied a Ba2 rating for the company as of June 8, nine steps lower than its actual Aa2 grade at Moody’s Investors Service, based on data from the ratings firm’s capital markets research group. The implied rating was as high as A3 on May 28, the data show. Junk bonds are rated below Baa3 by Moody’s and lower than BBB- by Standard & Poor’s. Counterparty Hedges Banks and other trading partners may be buying short-term protection from losses on derivatives they have with BP, said Tim Backshall , chief strategist at Credit Derivatives Research LLC in Walnut Creek, California. One-year credit swaps are trading 125 basis points more than the annual cost to protect the bonds for five years in a so-called inverted curve, according to CMA prices. Derivatives used for hedging foreign- exchange risk used by companies such as BP tend to be shorter-dated, Backshall said. Elsewhere in credit markets, two-year interest-rate swap spreads, a measure of bank risk, fell to the lowest in three weeks. Fannie Mae, the U.S.-supported mortgage company, plans to sell $3 billion of five-year benchmark notes after issuing $1 billion in a reopening of two-year debt, while Citigroup Inc. issued $1.88 billion of securities. Swap Spreads The difference between yields on two-year Treasuries and the rate to convert fixed payments to floating narrowed as much as 3.6 basis points to 38.4. Two-year interest-rate swap spreads soared to a 13-month high of 52.25 basis points on May 24 as investors fled all but the safest government securities. The spread dropped to 9.63 on March 24, the narrowest since 1993. The average spread on Merrill’s Global Broad Market Corporate index rose 1 basis point to 199 basis points, or 1.99 percentage points, yesterday. The yield was 4.08 percent. Fannie Mae’s five-year notes will be sold today, it said in an e-mailed statement. The Washington-based company’s $4 billion in 4.375 percent notes due in 2015 yields 2.44 percent and pays 47 basis points more than similar-maturity Treasuries, Bloomberg data show. Citigroup’s 6 percent debt maturing in 2013 yields 5.43 percent and pays a 425 basis point spread. Spreads on emerging-market bonds narrowed 1 basis point to 337 basis points, according to JPMorgan Chase & Co.’s Emerging Market Bond index. The gap has ranged from a low of 230 basis points on April 15 to as high as 346 on May 20. Bond Risk The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 2.3 basis points to a mid- price of 131.8 basis points as of 5:48 p.m. in New York, according to Markit Group Ltd. That’s the highest end-of-day level since July 14, according to CMA. The Markit iTraxx Asia index rose 1 basis point to 154 today, according to Deutsche Bank AG. The Markit iTraxx Australia index climbed 3 basis points to 145 in Sydney, its highest since Sept. 2, Nomura Holdings Inc. and CMA prices show. Swaps on Woodside Petroleum Ltd., Australia’s second- largest oil and gas producer, climbed 27.5 basis points to 217.5 at 3:20 p.m. in Sydney after earlier jumping by as much as a record 60 basis points, according to Deutsche Bank and CMA. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Oil Bonds Losses on bonds of BP, The Woodlands, Texas-based Anadarko Petroleum Corp. and Transocean Ltd. of Vernier, Switzerland, the other two companies involved in the oil spill, have sparked a 2.34 percent drop in Bank of America Merrill Lynch’s U.S. Corporate Energy index since April. A global broad corporate bond index is down 0.24 percent in the same period. BP has seven bonds with a face value of $10.6 billion in the Bank of America Merrill Lynch energy index. The spread on the bonds widened an average of 162 basis points to 541 basis points yesterday. The gap on the index is 239. Anadarko bond spreads increased 37 basis points to 501 on average, and Transocean surged 42 to 539. Ian MacDonald, an oceanographer at Florida State University in Tallahassee, estimated the well is leaking 26,500 barrels to 30,000 barrels a day into the Gulf, six times more than the figure used by BP and the government from April 28 to May 27. “The piece of news that seems to have broken the camel’s back was an increase of estimated spill volumes,” said Guy Lebas , chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. Investors should be “underweight” oil and gas debt, a change from “marketweight,” Lebas wrote in a June 7 report, amid greater regulation and a halt to drilling projects. Obama Study President Barack Obama said this week he would have fired BP Chief Executive Officer Tony Hayward for saying he wanted to end the leak because he wanted “his life back.” Obama said he has made three trips to the Gulf to find out who to hold responsible, “so I know whose ass to kick.” Lawmakers led by Representative Peter Welch , a Vermont Democrat, wrote to Hayward urging him to stop paying dividends and cancel an advertising campaign in the U.S. until the cleanup is done. BP shareholders got $10 billion in payouts last year. Should BP keep the same dividend this year as in 2009, the ratio of payouts to share price will be more than 10 percent, the highest among 18 of the company’s peers tracked by Bloomberg. As recently as the end of April, BP bond spreads averaged 46 basis points. The increase amounts to an extra $33 million in interest a year on every $1 billion BP borrows. BP has about $24.9 billion of debt, with $1.32 billion due this year and $5.96 billion maturing in 2011, according to data compiled by Bloomberg. Relative Value The 5.25 percent BP notes due in 2013 fell 5.75 cents to yield 7.89 percent as of 5:01 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That compares with 9.45 percent for high- yield, high risk corporate debt, according to Bank of America Merrill Lynch index data. Anadarko’s $1.75 billion of 6.45 percent bonds due in 2036 tumbled 5.75 cents to 76.5 cents for a yield spread of 4.63 percentage points, Trace data show. Credit-default swaps on its debt increased 221 basis points to 655. Transocean’s $1 billion of 6.8 percent securities due in 2038 fell 4.75 cents to 80.25 cents, for a spread of 4.58 percentage points. Credit-default swaps on its debt jumped 98 basis points to 613. To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net ; Shannon D. Harrington in New York at sharrington6@bloomberg.net

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JPMorgan Yields May Exceed Royal Bank of Scotland in CMBS Credit Markets

June 8, 2010

By Sarah Mulholland June 8 (Bloomberg) — JPMorgan Chase & Co. is selling $716.3 million of bonds tied to loans on commercial properties at higher relative yields than when the debt was last issued in April, just before the worst month for credit since markets froze in 2008. A top-rated portion maturing in five years may yield about 140 basis points, or 1.4 percentage points, more than the benchmark swap rate, people familiar with the offering said. Royal Bank of Scotland Group Plc paid a spread of 90 basis points on a similar slice of a $309.7 million deal in this year’s only other sale of commercial mortgage-backed bonds on April 9. JPMorgan, Bank of America Corp., Deutsche Bank AG and Goldman Sachs Group Inc. have been writing loans to be packaged into bonds to revive the $700 billion market for the debt that froze in 2008. Wider spreads may discourage lenders from extending credit to avoid getting stuck if markets seize up again, said Hexagon Securities’ Joshua Myers . “JPMorgan has to get the deal done,” said Myers, a commercial mortgage-backed debt trader for the firm in New York. “The banks need to get these loans off their balance sheets.” Top-rated bonds backed by commercial mortgages yielded about 309 basis points more than Treasuries as of June 4, according to Barclays Plc data . Spreads reached 312 basis points on May 26, the highest since Feb. 18. A year ago, the securities had a spread of 803 basis points. Justin Perras , a JPMorgan spokesman, declined to comment. Spread to Treasuries Elsewhere in credit markets, Microsoft Corp. , the world’s biggest software maker, plans to sell $1.15 billion of convertible senior notes due in 2013. Proceeds from the offering will be used to repay short-term debt, the Redmond, Washington- based company said today in a statement. Microsoft may grant underwriters an option to buy an additional $100 million of the notes. Microsoft issued $3.75 billion of 5-, 10- and 30-year debt in May 2009 as it tapped the corporate bond market for the first time, according to data compiled by Bloomberg. The company’s $2 billion of 2.95 percent notes maturing in 2014 traded at 103.936 cents on the dollar to yield 1.916 percent at 11:01 a.m. in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. Microsoft is rated Aaa by Moody’s Investors Service and AAA by Standard & Poor’s. Spreads to Treasuries The extra yield investors demand to own corporate bonds instead of government debt was unchanged at this year’s high of 196 basis points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Average yields were unchanged at 4.05 percent. Spreads soared 44 basis points in May as Europe’s sovereign-debt crisis and concern regulatory changes would hamper bank profits rattled credit markets. Prices of high-yield, high-risk loans have fallen to 88.87 cents on the dollar from as high as 92.90 cents on April 26, based on the S&P/LSTA U.S. Leveraged Loan 100 Index . May’s drop of 3.61 cents was the most since the index plunged 7.6 cents to 63.20 in November 2008. Standard & Poor’s said the number of issuers poised for upgrades rose by 38 in May to 257, with upgrade potential exceeding the trailing 12-month average by 68. The figure has “gained some ground” since September, when it exceeded the trailing 12-month average for the first time in almost two years, S&P said in a statement. Moody’s Investors Service raised its outlook for the airline industry to stable from negative, citing better credit conditions in the next 12 to 18 months. Profit Outlook “We expect profitability in the global airline sector to improve as we gain distance from the 2009 trough of the recession,” said Moody’s airline analyst Jonathan Root in New York. “While a contraction of consumer confidence and still- high unemployment remain risks that could temper improvements in yields, the airlines’ careful capacity management, if maintained, should be effective in mitigating these risks.” The airline industry will post a $2.5 billion profit in 2010, after two years of losses, the International Air Transport Association said yesterday, scrapping an estimate for a $2.8 billion deficit as the economy rebounds. The profit would be only the third in a decade following recession, terrorist attacks, epidemics and wars. An indicator of corporate credit risk in the U.S. held near an 11-month high as Federal Reserve Chairman Ben S. Bernanke said the nation’s economic recovery is “moderate paced.” U.S., Europe Risk Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 0.4 basis point to a mid-price of 129.5 basis points as of 12:08 p.m. in New York, according to Markit Group Ltd. An increase signals worsening investor confidence. The cost of protecting against a default on European corporate bonds rose, with credit-default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated companies climbing 4.4 basis points to 626.5, the highest since March 23, according to Markit Group Ltd. Credit swaps tied to Portugal’s debt dropped 11 basis points to 346 and Greece was 3 basis points lower at 776, CMA DataVision prices show. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments slipped 1 basis point to 165. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Emerging-Market Spreads In emerging markets, the extra yield investors demand to own corporate debt instead of government securities widened 1 basis point to 340, according to JPMorgan’s EMBI+ Index. The JPMorgan commercial mortgage bond sale consists of 36 loans on 96 properties, said the people, who declined to be identified because terms aren’t set. The securities would be backed by payments on the mortgages and not be an obligation of JPMorgan, which carries a credit rating of Aa3 from Moody’s. The April offering from RBS included 6 loans on 81 properties, and was the first to pool loans from multiple borrowers since June 2008. “The world has changed quite a bit since April,” said Kent Born , a senior managing director at PPM America Inc., an investment manager in Chicago. “The month of May felt a lot like the fall of 2008. They must be confident there is strong appetite for this type of deal.” Commercial-Property Bonds Top-rated commercial mortgage-backed securities tied to hotels, office towers and shopping centers have returned 6.46 percent this year, compared with 4.43 percent for U.S. investment-grade debt, according to Bank of America Merrill Lynch index data. Even with government aid, only $3.04 billion of commercial mortgage-backed debt was issued in 2009, compared with $11.2 billion in the prior year and a record $232.4 billion in 2007, according to data compiled by Bloomberg. A record 7.02 percent of borrowers are behind on payments, versus 1.87 percent a year ago, according to Moody’s. Bonds backed by newly originated commercial mortgages, underwritten with more conservative terms than those taken out when sales peaked, should meet with strong demand, Born said. “We get bombarded every day with bad news about commercial real estate in older deals,” he said. To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

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Air Liquide, Deutsche Bahn Lead in Revival of Europe Corporate Bond Sales

June 3, 2010

By Caroline Hyde and Sonja Cheung June 3 (Bloomberg) — Europe’s corporate bond market is re- opening with Air Liquide SA , the world’s biggest producer of industrial gases, and German railway Deutsche Bahn AG offering the first benchmark deals since April. Air Liquide in Paris is selling 500 million euros ($612 million) of 10-year notes yielding 90 basis points more than the benchmark swap rate, tighter than the 100 basis-point spread first offered to investors, said a banker involved in the deal. Deutsche Bahn raised 500 million euros yesterday from notes due in 2020 without offering a yield premium to its existing debt. “Air Liquide and Deutsche Bahn are the first benchmark corporate bonds in a month, and will likely reopen the market for other issuers,” said Maureen Schuller , a credit strategist at ING Groep NV in Amsterdam. “These are two solid names from the core countries, which is what investors are looking for.” Bond sales slumped 70 percent in May from the previous month to 13.7 billion euros amid investor concern Europe’s deficit crisis will hurt economic growth, making it harder for companies to repay debt. Air Liquide and Deutsche Bahn’s notes are the first non-financial issues since French retailer Casino Guichard-Perrachon SA and Aeroports de Paris sold benchmark bonds on May 5, according to data compiled by Bloomberg. The extra yield investors demand to hold company bonds instead of government debt jumped to a nine-month high of 209 basis points on May 25, according to Bank of America Merrill Lynch’s EMU Corporate Bonds Index. The spread is now 205, the index shows. A basis point is 0.01 percentage point. Default Swaps The cost of insuring company debt in the market for credit- default swaps fell today with contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield ratings declining 21.5 basis points to 554.5, according to JPMorgan Chase & Co. State-owned Deutsche Bahn priced its notes at a spread of 60 basis points over swaps. The Berlin-based rail firm is rated Aa1 by Moody’s Investors Service, the second-highest grade, and a level lower by Standard & Poor’s. Deutsche Bahn’s deal shows investors “want to see investment opportunities on the primary market, even if the overall return on offer is limited,” said Markus Steilen , a syndicate manager at Commerzbank in Frankfurt, which was one of the banks managing the rail company’s issue. Air Liquide’s note sale is part of an exchange and tender offer for its 6.125 percent 2012 bonds, according to a May 26 statement. The company is rated A by S&P, the fifth-lowest investment-grade ranking. French railroad operator Reseau Ferre de France also sold new bonds by adding 250 million euros to its 4.5 percent January 2024 notes, according to Bloomberg data. The additional bonds yield 29 basis points more than the swap rate. To contact the reporters on this story: Caroline Hyde in London chyde3@bloomberg.net ; Sonja Cheung in London at scheung58@bloomberg.net

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Air Liquide, Deutsche Bahn Lead in Revival of Europe Corporate Bond Sales

June 3, 2010

By Caroline Hyde and Sonja Cheung June 3 (Bloomberg) — Europe’s corporate bond market is re- opening with Air Liquide SA , the world’s biggest producer of industrial gases, and German railway Deutsche Bahn AG offering the first benchmark deals since April. Air Liquide in Paris is selling 500 million euros ($612 million) of 10-year notes yielding 90 basis points more than the benchmark swap rate, tighter than the 100 basis-point spread first offered to investors, said a banker involved in the deal. Deutsche Bahn raised 500 million euros yesterday from notes due in 2020 without offering a yield premium to its existing debt. “Air Liquide and Deutsche Bahn are the first benchmark corporate bonds in a month, and will likely reopen the market for other issuers,” said Maureen Schuller , a credit strategist at ING Groep NV in Amsterdam. “These are two solid names from the core countries, which is what investors are looking for.” Bond sales slumped 70 percent in May from the previous month to 13.7 billion euros amid investor concern Europe’s deficit crisis will hurt economic growth, making it harder for companies to repay debt. Air Liquide and Deutsche Bahn’s notes are the first non-financial issues since French retailer Casino Guichard-Perrachon SA and Aeroports de Paris sold benchmark bonds on May 5, according to data compiled by Bloomberg. The extra yield investors demand to hold company bonds instead of government debt jumped to a nine-month high of 209 basis points on May 25, according to Bank of America Merrill Lynch’s EMU Corporate Bonds Index. The spread is now 205, the index shows. A basis point is 0.01 percentage point. Default Swaps The cost of insuring company debt in the market for credit- default swaps fell today with contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield ratings declining 21.5 basis points to 554.5, according to JPMorgan Chase & Co. State-owned Deutsche Bahn priced its notes at a spread of 60 basis points over swaps. The Berlin-based rail firm is rated Aa1 by Moody’s Investors Service, the second-highest grade, and a level lower by Standard & Poor’s. Deutsche Bahn’s deal shows investors “want to see investment opportunities on the primary market, even if the overall return on offer is limited,” said Markus Steilen , a syndicate manager at Commerzbank in Frankfurt, which was one of the banks managing the rail company’s issue. Air Liquide’s note sale is part of an exchange and tender offer for its 6.125 percent 2012 bonds, according to a May 26 statement. The company is rated A by S&P, the fifth-lowest investment-grade ranking. French railroad operator Reseau Ferre de France also sold new bonds by adding 250 million euros to its 4.5 percent January 2024 notes, according to Bloomberg data. The additional bonds yield 29 basis points more than the swap rate. To contact the reporters on this story: Caroline Hyde in London chyde3@bloomberg.net ; Sonja Cheung in London at scheung58@bloomberg.net

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Bond Selloff Yields `Gems’ for Tepper as T. Rowe Buys Junk Credit Markets

May 31, 2010

By Bryan Keogh and John Detrixhe June 1 (Bloomberg) — The worst month for corporate credit since markets seized up in 2008 means investors including hedge-fund manager David Tepper are seeing “gems” in everything from junk bonds to debt backed by commercial mortgages. The extra yield investors demand to own corporate bonds of all grades instead of Treasuries widened 44 basis points last month to 193 basis points, or 1.93 percentage points, Bank of America Merrill Lynch index data show. High-yield company debt lost 3.57 percent. Spreads on high- rated commercial mortgage bonds jumped 67 basis points to 306. Leveraged loan prices tumbled 3.89 percent to 89.11 cents on the dollar. “Corporates have entered this period with much stronger balance sheets and in particular I think many high-yield corporates are in a much stronger position to weather a storm,” said Dan Shackelford , a money manager who helps oversee $15 billion in fixed-income assets at T. Rowe Price Group Inc. in Baltimore. He’s “much more inclined at some point” to buy “corporate and high yield as opposed to throwing it all out and running for the hills,” he said. U.S. corporate profits rose 31 percent in the first quarter from a year earlier, the biggest gain since 1984, Commerce Department data released in Washington showed last week. Only six times in the past 60 years have earnings surged as fast, according to Barclays Capital. GDP Growth Each of those periods was followed by real gross domestic product growth of at least 3 percent the following year. The last time it happened, in 2004, the economy expanded 3.6 percent, from 2.5 percent in 2003, and yield spreads on investment- and speculative-grade corporate debt narrowed to an average of 138 basis points, from 171 basis points. “Junk bonds and credit have gotten so demolished,” said Burt White , who helps oversee $284 billion of securities as chief investment officer at LPL Financial Corp. in Boston. “You go in and pick up bargains.” White favors industrial company bonds, bank loans and high-yield debt. Sanjay Joshi , a money manager at London & Capital Group Ltd., is buying bonds of commodity and retail companies. “Measures to rebuild market confidence have been put in place,” said Joshi, who helps oversee more than $2.7 billion of assets. “We are seeing companies perform well with balance sheets healthier and a move into longer-term debt.” Last Week’s Rally Yield premiums on company bonds tightened at the end of last week as reports showed a gauge of U.S. consumer sentiment rose and purchases of new homes jumped to a two- year high. European governments including the U.K. and Portugal have pledged to slash their record budget deficits, with Greece promising to implement austerity measures equal to almost 14 percent of GDP in exchange for $1 billion in rescue funds from the European Union. That wasn’t enough to keep bonds from losing 0.45 percent on average in May, their first down month since dropping 0.57 percent in December, Bank of America Merrill Lynch indexes show. The volatility damped sales. Corporate bond issuance worldwide slowed to $66.1 billion, down from $183 billion in April and the least since December 2000, according to data compiled by Bloomberg. At least 14 companies withdrew offerings, including New York-based retailer Jones Apparel Group Inc. and theater chain operator Regal Entertainment Group. Tepper’s ‘Gems’ Tepper, who runs Short Hills, New Jersey-based Appaloosa Management LP, favors bonds backed by mortgages on everything from skyscrapers to shopping malls after yield spreads on the highest-rated debt widened by the most since February 2009, as measured by Barclays indexes. “There’s a lot of gems out there” in the commercial collateralized mortgage-backed securities market, Tepper said May 26 at the Ira Sohn Investment Research Conference in New York. He also recommended buying American International Group Inc. ’s 8.175 percent junior subordinated debt. Michael Donelan , who oversees $3.5 billion of bonds at Ryan Labs Inc., snapped up Goldman Sachs Group Inc. notes last week after shedding financial debt in early May. Corporate spreads “have really priced in a lot of bad news,” said Donelan, the firm’s director of trading and head portfolio manager based in New York. Senate Proposals Theodore Stamos , who helps oversee $70 billion of assets at Investec Asset Management Ltd., said he likes financial bonds after U.S. lawmakers “watered down” proposed regulatory changes for the industry presented to the Senate last month more than expected. “In the medium to long term, we see value in financial names which have recently underperformed,” said Stamos, a credit analyst and portfolio manager based in London. “We could see more stability in June, as we haven’t seen May’s kind of volatility since the stock market lows in March 2009.” The bond selloff last month that drove spreads wider and crimped new issues was a “deleveraging correction that has run its course” rather than a sign Europe faces a return to recession, BNP Paribas credit strategists led by Vivek Tawadey in London wrote in a May 28 report. Economic Recovery Markets rallied late last week as economic data buoyed investor confidence that the global recovery from the worst recession since the 1930s will continue, even as governments attempt to reduce spending to cut budget deficits. The Thomson Reuters/University of Michigan final May consumer sentiment index increased to 73.6 from 72.2 in April, according to a May 28 report. New-home sales in the U.S. increased 15 percent to an annual pace of 504,000 in April, the highest level since May 2008, while durable goods orders rose 2.9 percent, the biggest jump in three months, the Commerce Department said May 26. Spreads on global high-yield bonds narrowed 35 basis points to 708 basis points on May 27 to 28 as markets recovered. That’s down from a seven-month high of 743 basis points on May 25 and marks the biggest two-day drop since September, Bank of America Merrill Lynch index data show. Market ‘Thinness’ “Given the current thinness of the market, we must be cautious about drawing conclusions, but the bounce-back suggests there are investors who believe the fundamentals remain firm and will provide some support to prices,” according to Martin Fridson , the chief executive officer of Fridson Investment Advisors in New York. Credit markets were dealt fresh blows over the holiday weekend. Spain, struggling with the euro area’s third- largest budget deficit, lost its top credit grade at Fitch Ratings and the European Commission said confidence in the region’s economic outlook worsened in May, contrary to economists’ expectations. Fitch lowered Spain’s credit rating one step to AA+ from AAA after European markets closed May 28, saying that budget cuts “will materially reduce the rate of growth” of the country’s economy. An index of executive and consumer sentiment in the 16 euro nations fell to 98.4 from 100.6 in April, the commission in Brussels said yesterday. Economists had forecast a confidence reading of 100.6, based on the median of 25 estimates in a Bloomberg News survey. U.S. and U.K. markets were closed yesterday for public holidays. Credit Havens Debt investors found havens in investment-grade bonds of health care and service companies in May, which rallied 0.63 percent and 0.48 percent, compared with an average loss of 0.65 percent, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Insurers’ bonds performed the worst, giving up 2.14 percent. High- yield bonds lost 4.01 percent. “There will be good buying opportunities to snap up bargains in the next one to three months,” said Felix Freund , a Frankfurt-based money manager at Union Investment GmbH, which oversees 160 billion euros ($198 billion) of assets. “The dust will eventually settle, and there are assets including corporate bonds that aren’t directly linked to the sovereign crisis and have sold off too much.” To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Bond Selloff Yields `Gems’ for Tepper as T. Rowe Buys Junk Credit Markets

May 31, 2010

By Bryan Keogh and John Detrixhe June 1 (Bloomberg) — The worst month for corporate credit since markets seized up in 2008 means investors including hedge-fund manager David Tepper are seeing “gems” in everything from junk bonds to debt backed by commercial mortgages. The extra yield investors demand to own corporate bonds of all grades instead of Treasuries widened 44 basis points last month to 193 basis points, or 1.93 percentage points, Bank of America Merrill Lynch index data show. High-yield company debt lost 3.57 percent. Spreads on high- rated commercial mortgage bonds jumped 67 basis points to 306. Leveraged loan prices tumbled 3.89 percent to 89.11 cents on the dollar. “Corporates have entered this period with much stronger balance sheets and in particular I think many high-yield corporates are in a much stronger position to weather a storm,” said Dan Shackelford , a money manager who helps oversee $15 billion in fixed-income assets at T. Rowe Price Group Inc. in Baltimore. He’s “much more inclined at some point” to buy “corporate and high yield as opposed to throwing it all out and running for the hills,” he said. U.S. corporate profits rose 31 percent in the first quarter from a year earlier, the biggest gain since 1984, Commerce Department data released in Washington showed last week. Only six times in the past 60 years have earnings surged as fast, according to Barclays Capital. GDP Growth Each of those periods was followed by real gross domestic product growth of at least 3 percent the following year. The last time it happened, in 2004, the economy expanded 3.6 percent, from 2.5 percent in 2003, and yield spreads on investment- and speculative-grade corporate debt narrowed to an average of 138 basis points, from 171 basis points. “Junk bonds and credit have gotten so demolished,” said Burt White , who helps oversee $284 billion of securities as chief investment officer at LPL Financial Corp. in Boston. “You go in and pick up bargains.” White favors industrial company bonds, bank loans and high-yield debt. Sanjay Joshi , a money manager at London & Capital Group Ltd., is buying bonds of commodity and retail companies. “Measures to rebuild market confidence have been put in place,” said Joshi, who helps oversee more than $2.7 billion of assets. “We are seeing companies perform well with balance sheets healthier and a move into longer-term debt.” Last Week’s Rally Yield premiums on company bonds tightened at the end of last week as reports showed a gauge of U.S. consumer sentiment rose and purchases of new homes jumped to a two- year high. European governments including the U.K. and Portugal have pledged to slash their record budget deficits, with Greece promising to implement austerity measures equal to almost 14 percent of GDP in exchange for $1 billion in rescue funds from the European Union. That wasn’t enough to keep bonds from losing 0.45 percent on average in May, their first down month since dropping 0.57 percent in December, Bank of America Merrill Lynch indexes show. The volatility damped sales. Corporate bond issuance worldwide slowed to $66.1 billion, down from $183 billion in April and the least since December 2000, according to data compiled by Bloomberg. At least 14 companies withdrew offerings, including New York-based retailer Jones Apparel Group Inc. and theater chain operator Regal Entertainment Group. Tepper’s ‘Gems’ Tepper, who runs Short Hills, New Jersey-based Appaloosa Management LP, favors bonds backed by mortgages on everything from skyscrapers to shopping malls after yield spreads on the highest-rated debt widened by the most since February 2009, as measured by Barclays indexes. “There’s a lot of gems out there” in the commercial collateralized mortgage-backed securities market, Tepper said May 26 at the Ira Sohn Investment Research Conference in New York. He also recommended buying American International Group Inc. ’s 8.175 percent junior subordinated debt. Michael Donelan , who oversees $3.5 billion of bonds at Ryan Labs Inc., snapped up Goldman Sachs Group Inc. notes last week after shedding financial debt in early May. Corporate spreads “have really priced in a lot of bad news,” said Donelan, the firm’s director of trading and head portfolio manager based in New York. Senate Proposals Theodore Stamos , who helps oversee $70 billion of assets at Investec Asset Management Ltd., said he likes financial bonds after U.S. lawmakers “watered down” proposed regulatory changes for the industry presented to the Senate last month more than expected. “In the medium to long term, we see value in financial names which have recently underperformed,” said Stamos, a credit analyst and portfolio manager based in London. “We could see more stability in June, as we haven’t seen May’s kind of volatility since the stock market lows in March 2009.” The bond selloff last month that drove spreads wider and crimped new issues was a “deleveraging correction that has run its course” rather than a sign Europe faces a return to recession, BNP Paribas credit strategists led by Vivek Tawadey in London wrote in a May 28 report. Economic Recovery Markets rallied late last week as economic data buoyed investor confidence that the global recovery from the worst recession since the 1930s will continue, even as governments attempt to reduce spending to cut budget deficits. The Thomson Reuters/University of Michigan final May consumer sentiment index increased to 73.6 from 72.2 in April, according to a May 28 report. New-home sales in the U.S. increased 15 percent to an annual pace of 504,000 in April, the highest level since May 2008, while durable goods orders rose 2.9 percent, the biggest jump in three months, the Commerce Department said May 26. Spreads on global high-yield bonds narrowed 35 basis points to 708 basis points on May 27 to 28 as markets recovered. That’s down from a seven-month high of 743 basis points on May 25 and marks the biggest two-day drop since September, Bank of America Merrill Lynch index data show. Market ‘Thinness’ “Given the current thinness of the market, we must be cautious about drawing conclusions, but the bounce-back suggests there are investors who believe the fundamentals remain firm and will provide some support to prices,” according to Martin Fridson , the chief executive officer of Fridson Investment Advisors in New York. Credit markets were dealt fresh blows over the holiday weekend. Spain, struggling with the euro area’s third- largest budget deficit, lost its top credit grade at Fitch Ratings and the European Commission said confidence in the region’s economic outlook worsened in May, contrary to economists’ expectations. Fitch lowered Spain’s credit rating one step to AA+ from AAA after European markets closed May 28, saying that budget cuts “will materially reduce the rate of growth” of the country’s economy. An index of executive and consumer sentiment in the 16 euro nations fell to 98.4 from 100.6 in April, the commission in Brussels said yesterday. Economists had forecast a confidence reading of 100.6, based on the median of 25 estimates in a Bloomberg News survey. U.S. and U.K. markets were closed yesterday for public holidays. Credit Havens Debt investors found havens in investment-grade bonds of health care and service companies in May, which rallied 0.63 percent and 0.48 percent, compared with an average loss of 0.65 percent, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Insurers’ bonds performed the worst, giving up 2.14 percent. High- yield bonds lost 4.01 percent. “There will be good buying opportunities to snap up bargains in the next one to three months,” said Felix Freund , a Frankfurt-based money manager at Union Investment GmbH, which oversees 160 billion euros ($198 billion) of assets. “The dust will eventually settle, and there are assets including corporate bonds that aren’t directly linked to the sovereign crisis and have sold off too much.” To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Leveraged-Loan Returns Headed for First Monthly Loss Since December 2008

May 28, 2010

By Richard Bravo May 28 (Bloomberg) — A broad index that tracks the leveraged-loan market is poised to post a loss for May, its first negative monthly return in almost a year and a half. The S&P/LSTA Leveraged Loan Index was down 2.33 percent for the month as of yesterday, after a streak of 16 positive monthly returns going back to December 2008, when it lost 2.95 percent, according to Standard & Poor’s. Europe’s sovereign debt crisis and subsequent market volatility damped loan and high-yield, high-risk bond prices, increasing financing costs for companies seeking new debt. Issuance in loan and bond markets shrank in May with deals reworked or scrapped. The extra yield investors demand to own junk-rated debt instead of Treasuries narrowed to 6.88 percentage points yesterday, up from 5.61 percentage points on April 30, according to Bank of America Merrill Lynch data. “At times of stress, the equity and leveraged-finance markets become highly correlated,” said Leland Hart , portfolio manager at New York-based BlackRock Inc., which manages more than $20 billion in leveraged-finance assets. “The market is trying to digest where the world is going and that is reflected in both the debt and equity markets.” The S&P/LSTA U.S. Leveraged Loan 100 Index , which tracks the 100 largest dollar-denominated first-lien leveraged loans, rose to 89.06 cents on the dollar yesterday, down from 92.72 cents on April 30. Prices are up 50 percent from Dec. 17, 2008, when the index closed at 59.2 cents. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and BBB- by S&P. Mutual Fund Outflow For the week ended May 26, loan mutual funds had an outflow of $127.5 million, the largest outflow since the week ended Nov. 25, 2008, according to Lipper FMI data. High-yield bond funds had $1.22 billion in outflows for the week. “Given the recent global events, there has been a reduction in investor risk appetites,” said Stephen G. Moyer , a distressed-debt portfolio manager at Pacific Investment Management Co. in Newport Beach, California, which has $1.07 trillion in assets under management. “The premise of this rotation into riskier asset classes being safe was a stronger economic growth outlook that appears, to many, not to have panned out.” At least two transactions were pulled in the past two weeks. Genband Inc. shelved a $250 million term loan that would have been used for its acquisition of a unit of Nortel Networks Corp., according to S&P’s Leveraged Commentary and Data. National Vision Inc. postponed a $220 million term loan it sought for a dividend payment to its owner, Berkshire Partners LLC, according to people familiar with the decision, who declined to be identified because the deal was private. More Expensive Rising interest rates also will make transactions more expensive for companies seeking new loans. The rate banks charge each other for three-month loans in dollars climbed to its highest level yesterday since July 6, according to the British Bankers’ Association. The three-month London interbank offered rate, or Libor, fell to 0.536 percent today. That’s up from 0.347 percent on April 30. “The calendars of loan and bond deals are both being reconsidered,” BlackRock’s Hart said. “The better companies are not having a problem accessing capital, but companies and structures that are pushing the envelope are getting shoved aside.” As of yesterday, $18.3 billion of U.S. leveraged loans have been arranged this month, almost half the $35.1 billion assembled in April, according to data compiled by Bloomberg. About $6.5 billion of U.S. high-yield bonds have been priced so far in May, down from $33.4 billion last month. Sovereign-Debt Crisis The European sovereign-debt crisis, which sent yields on Greek two-year bonds to 18.27 percent on May 7 before the European Union agreed to a $1 trillion aid package, brought a return of risk aversion to the markets, said AJ Murphy , head of leveraged loans capital markets for the Americas at Bank of America Merrill Lynch in New York. The Chicago Board Options Exchange Volatility Index , known as the VIX, was at 29.68 yesterday, up 35 percent since the beginning of the month. “You had a bad confluence of events,” Murphy said. “High yield, which had been overbought, sold off and there was a loss of liquidity in the high-yield and loan markets. The market had been so frothy and this event caused people to take a step back and see that it’s come up pretty far pretty fast.” A record $163 billion of debt was sold in the high-yield bond market last year, Bloomberg data show. In more than 100 of those transactions, proceeds totaling $48.6 billion were used to pay down loans, JPMorgan Chase & Co. analysts led by Peter Acciavatti in New York wrote in a May 7 report. High-Yield Market Reduced access to the high-yield market is a concern for companies that have outstanding loan maturities coming due, said Pimco’s Moyer. Collateralized loan obligations, which bundle loans, have a diminished presence in the market and banks have contracted lending, Moyer wrote in a research note released on Pimco’s website this week. For the week ending May 12, banks were holding $1.26 trillion of commercial and industrial loans on their balance sheets, down from $1.65 trillion in October 2008, according to Federal Reserve data. Over the next five years, speculative-grade companies have about $555 billion in bank credit facilities coming due and about $250 billion in bonds maturing, according to Moody’s. “If you do have some shift away from enthusiasm in the high-yield bond market, it’s hard to see where these capital demands are going to be satisfied from,” Moyer said. “They’re not going to be able to go back to the bank-loan market and if you can’t go to the high-yield bond market, then where does a below investment-grade credit get refinanced?” To contact the reporter on this story: Richard Bravo in New York at rbravo5@bloomberg.net .

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Foster’s to Spin Off Wine Unit, Ending $5.6 Billion Expansion; Shares Jump

May 25, 2010

By Robert Fenner May 26 (Bloomberg) — Foster’s Group Ltd. , Australia’s biggest liquor maker, plans to spin off its wine unit, unwinding a A$6.8 billion ($5.6 billion) expansion marred by falling prices and shrinking profit margins. Foster’s shares surged the most in more than two years after the plan was announced. Australia’s largest brewer will write down the wine unit by as much as A$1.3 billion before taxes, the Melbourne-based company said in a statement today. Chief Executive Officer Ian Johnston is betting separate companies will be more appealing to investors, almost 15 years after Foster’s began expanding into wine to reduce reliance on stalling beer demand. The beer unit, with brands such as Victoria Bitter and Crown Lager, accounts for 85 percent of earnings and has wider profit margins than SABMiller Plc and Heineken NV . “A demerger allows management and the market to focus on the beer business which is fundamentally solid,” said Prasad Patkar , who helps manage about $1.3 billion in Sydney at Platypus Asset Management Ltd. “The wine business hasn’t worked for Foster’s since it was acquired.” Foster’s jumped as much as 8.7 percent to A$5.60 in Sydney trading, the biggest intraday gain since Aug. 29, 2006. The stock traded at A$5.44 as of 12:18 p.m. Sydney time. The company’s stock , which has posted just two annual gains since 2001, is worth 3.7 percent less than when it paid A$3.2 billion in 2005 for Southcorp Ltd. The wine business, with brands including Wolf Blass and Beringer, is the world’s second- largest, trailing only Victor, New York-based Constellation Brands Inc. Beer Unit’s Value Foster’s has a current market value of A$10.5 billion. The CUB beer unit may be worth A$12.5 billion alone, David Errington , an analyst at Bank of America Merrill Lynch, said in a note to clients today, before the announcement. “We see A$1.50 per share available to Foster’s shareholders if the company is split into two separate companies,” Errington wrote. “The concern is that if the current performance is allowed to continue, the value of Foster’s assets will erode … permanently.” A separate beer unit may attract a takeover offer from Coca-Cola Amatil Ltd. and SABMiller , who are building an Australian brewery together, said Theo Maas , who helps manage A$5 billion at Arnhem Investment Management in Sydney. Sally Loane , a spokeswoman for Sydney-based Coca-Cola Amatil, wasn’t immediately available to comment. No Takeover Offers Foster’s hired Gresham Advisory Partners to assist with the plan to separate its beer and wine units, with Foster’s yet to make any decision on management, final structure or debt holdings of the separate entities. “We will proceed as quickly as possible, but priority will be given to ensuring that all relevant matters are carefully and rigorously examined,” Johnston told analysts on a conference call today. Johnston said the company hasn’t received any takeover offers for the whole company or individual units. John Pollaers , who became head of CUB last month, told reporters in Melbourne today that any decision on management is for the board to decide. Foster’s expects earnings before interest and tax of A$1.05 billion to A$1.08 billion for the year ending June, excluding the impact of the new charges. CUB posted a first-half a profit margin, which measures earnings before interest and taxes as a proportion of revenue, of 38.5 percent. Anheuser-Busch Inbev , the world’s largest brewer, has a margin of 27.9 percent while Heineken’s is 12.4 percent. Mildara Blass, Beringer Foster’s began its wine expansion in 1996 by paying A$482 million for Mildara Blass Ltd. In 2001, it moved into California with the A$2.6 billion purchase of Beringer Wine Estates Holdings Inc. before adding Southcorp in 2005. Today’s charges follow A$397.6 million in write downs Foster’s took in 2009 to sell vineyards and scrap brands and A$602.9 million in one-time items in 2008. Foster’s in February reported its lowest fiscal first-half profit in four years as gains in the nation’s currency slashed the value of overseas sales, a grape glut in Australia prompted discounting and the U.S. recession curbed restaurant demand. The wine business posted profit of A$99.2 million in the six months ended December, 41 percent less than it earnings from the unit before buying Southcorp. The company gets about 32 percent of sales from overseas , almost all of which is attributed to the wine unit. Each 1 cent move in the Australian dollar against its U.S. counterpart affects earnings before interest and taxes by A$1.9 million. To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net

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Strippers Declare Inflation Dead in Zero-Coupon Bonds

May 24, 2010

By Susanne Walker May 24 (Bloomberg) — The 18-month slump in Treasury zero- coupon bonds is giving way to rising demand as the rate of inflation falls to a 40-year low, turning so-called Strips into the best performers in the U.S. government debt market. Investment banks increased the securities — created by separating the interest and principal payments of a bond and selling them at a discount — by 4.4 percent to $179.4 billion from December through April, according to Treasury Department data. It’s the first time that the market expanded for five straight months since 2006. The call for Strips, which started in 1985 after former Federal Reserve Chairman Paul Volcker broke the back of inflation, suggests growing bullishness toward the bond market after the Bank of America Merrill Lynch U.S. Treasury Master Index fell 3.7 percent in 2009. Yields on Treasury Inflation- Protected Securities show money managers expect the consumer price index to increase an average 1.96 percent annually over the next decade, down from 2.43 percent as recently as April 29. “We are in some sort of a new normal environment and inflation is not going to be a problem anytime soon,” said Jeffrey Caughron , an associate partner in Oklahoma City at Baker Group Ltd., which advises community banks investing $20 billion of assets and is recommending that some clients buy zero-coupon Treasuries. “Strips would be beneficial if we go to anything close to deflation.” Falling Prices The consumer price index dropped 0.1 percent in April, the first decrease since March 2009, figures from the Labor Department in Washington showed May 19. Excluding food and fuel, the so-called core rate was unchanged, capping the smallest 12- month gain in four decades. Slower inflation preserves the value of fixed-interest payments, especially for longer-maturity bonds. Treasury 30-year zero-coupon bonds have returned 16.7 percent this year, including 15.2 percent in May, according to Bank of America Merrill Lynch indexes. Strips are outperforming the rest of the $7.9 trillion market for Treasuries, the benchmark for everything from corporate bonds to mortgage rates. Government securities have returned 4.4 percent since December, including reinvested interest, the most at this point in a year since gaining 8.6 percent in 1995, according to Bank of America Merrill Lynch indexes. Beating Stocks They’re beating the Standard & Poor’s 500 Index, down 2.46 percent in 2010, and the Reuters/Jefferies CRB Index of 19 commodities, which has fallen 11.3 percent. Treasury Inflation- Protected Securities, or TIPS, developed in 1997, have also lagged behind, gaining 3.32 percent on average. “Inflation is not a near-term concern,” said Tom Girard , the New York-based head of the portfolio management and strategy in the fixed-income group of New York Life Investment Co. The insurer holds Strips among the more than $127 billion in assets under management. Strips, short for separate trading of registered interest and principal of securities, are created by Wall Street firms that split bonds into their face amount and individual coupon payments. The amount of Strips outstanding climbed to an eight-year high of $206.9 billion in April 2008, before falling to $171.7 billion in November 2009, according to Treasury Department figures. The decline came as credit markets recovered and concern rose that the unprecedented cash pumped into the economy by the Fed and record borrowing by the Obama administration would spark inflation. Rebounding From Loss The securities lost 47 percent on average last year, according to Bank of America Merrill Lynch indexes. Demand is picking up on speculation the expanding sovereign debt crisis in Europe will slow the global economy and keep the Fed from boosting its target rate for overnight loans between banks from a range of zero to 0.25 percent. Rising rates hurt the value of Strips more than bonds because investors don’t get any payments from the securities to reinvest until they mature. The gain in Strips “tells me other fixed-income securities usually bought by pension funds probably aren’t also attractive because of credit risk,” said George Goncalves, the New York- based head of interest-rate strategy at primary dealer Nomura Holdings Inc. The firm pushed back its forecast last week for a Fed rate increase to June 2011. Corporate bonds have lost 0.66 percent this month, the most since they fell 1.88 percent in February 2009, based on Bank of America Merrill Lynch indexes. Pushing Back Last week, Citigroup Inc. joined the growing list of bond dealers pushing back forecasts for when the central bank will start raising rates until the first half of 2011. Europe’s debt crisis has led to “the threat of renewed financial instability and heightened risk aversion,” Citigroup, one of the 18 primary dealers that trade directly with the Fed, said in a report. Demand for Treasuries picked up last week. The yield on the benchmark 3.5 percent note due May 2020 fell 22 basis points to 3.24 percent as investors sought a refuge from losses in higher- risk assets, according to BGCantor Market Data. The yield touched 3.10 percent on May 21, the lowest in a year, as bond prices rose. Ten-year yields declined to 3.21 percent as of 10:49 a.m. today in Tokyo. The rally is a surprise to most of the primary dealers . At the start of 2010 they predicting investors in Treasuries would lose money again this year as the economy continued to recover and pushed the Fed closer to tightening monetary policy. ‘Economic Slack’ “Even though the recovery appeared to be continuing and was expected to strengthen gradually over time, most members projected that economic slack would continue to be quite elevated for some time,” according minutes of the Federal Open Market Committee’s April 27-28 meeting released last week. Officials expected inflation to remain “below rates that would be consistent in the longer run with the Federal Reserve’s dual objectives” of maximum employment and stable prices, the minutes said. Some policy makers said they were concerned about potential spillover to the U.S. from the Greek debt crisis. European officials announced an almost $1 trillion aid package and the Fed decided to open emergency currency swaps a week later. Austerity Measures “With the austerity measures slowing growth and taking pressure off inflation, we’re seeing a drifting back into Treasuries and into Strips,” said Mark Fovinci , who manages $2.8 billion for Ferguson Wellman in Portland, Oregon. “We are coming out of a recession and into recovery, which has been led by exports. The declining euro will take the edge off growth and pressure off inflation.” The dollar has strengthened 9.2 percent this year while the euro has weakened 6.1 percent, according to Bloomberg Correlation-Weighted Indexes. The euro dropped to $1.2144 on May 19, the lowest level since April 2006. Global purchases of U.S. equities, notes and bonds totaled $140.5 billion in March, more than double economists’ estimates, after net buying of $47.1 billion in February, the Treasury said May 17. Purchases of Treasuries rose by the most since June as China, the largest lender to the U.S., added to its holdings for the first time since September. Demand for Treasuries and dollar-based assets is helping cap borrowing costs as President Barack Obama finances the economic recovery by selling record amounts of bonds to finance a budget deficit that exceeds $1 trillion. More Americans filed applications for unemployment benefits in the week ended May 15 than economists forecast, showing firings remain elevated even as employment rises. Strips History Strips were created after the Fed risked losing credibility as inflation reached a 14.8 percent annual rate in March 1980. Volcker, now chairman of Obama’s Economic Recovery Advisory Board, responded by raising rates as high as 20 percent even as the economy slipped into the longest post-World War II recession to win back confidence among investors. By the time Volcker stepped down from the Fed in 1987, inflation slowed to 4.3 percent and benchmark borrowing costs were 6.75 percent. Zero-coupon securities have traditionally been most popular for investments on which taxes can be deferred, such as individual retirement accounts and pension plans, since any increase in value is accrued annually. At the same time, the known cash value at specific future dates enables savers and investors to tailor their use. “In this post-crisis environment, it’s back to basics for these pension funds,” said Richard Bryant , senior vice president in fixed income at MF Global Inc. in New York, a broker of exchange-traded futures. “The increase in the amount of long Treasuries held in strip form is because of demand at these yield levels.” To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net .

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Bank of America Names Dreyer to Head Europe High-Grade Loans in Expansion

May 21, 2010

By Patricia Kuo May 21 (Bloomberg) — Bank of America Corp. , the biggest U.S. lender, appointed Shaun Dreyer as head of investment-grade loan syndication for Europe, the Middle East and Africa as the bank seeks to parlay its acquisition of Merrill Lynch & Co. into a bigger share of debt underwriting outside of the U.S. Dreyer, a 14-year veteran of the firm, joins as Bank of America jumps to fifth most-active underwriter of high-grade loans in Europe this year, with 5 percent of the $103 billion market, from 21st in 2009, according to data compiled by Bloomberg. It replaces U.S. rival JPMorgan Chase & Co., which has fallen to 14th. “We feel it is time to focus on developing our business in areas where we have the opportunity to capture more market share,” Peter Hall , global head of investment-grade syndicated capital markets with Bank of America Merrill Lynch, said in an interview. Bank of America, based in Charlotte, North Carolina, relied on North America for 82 percent of revenue last year. The bank overhauled its board amid criticism from investors over its 2008 purchase of Merrill Lynch, which had three times as many corporate customers in Asia, Europe and the Middle East. ‘Makes Sense’ Dreyer, to be based in London, will report to Hall and Paul Richards , the head of debt capital markets in Europe, the bank said in an e-mail. “Loan demand in the U.S. is still quite weak, so if they can find creditworthy borrowers overseas, it does make sense to expand lending outside of the U.S.,” said Gary Townsend , president of Hill-Townsend Capital, a Chevy Chase, Maryland- based investment firm with $60 million of holdings in financial companies. At stake are more than $300 million in annual fees underwriting European loans, and relationships with borrowers that may lead to more lucrative work such as stock sales and mergers advice. Outstanding corporate loans held by U.S. banks have declined to $1.27 trillion from $1.65 trillion in October 2008, according to data from the Federal Reserve. Competition among banks is intensifying as their earnings rebound and they emerge from the worst economic slump since the Great Depression. Bank of America leapfrogged 26 spots to third place among underwriters of German loans after helping to arrange 4.2 billion euros ($5.2 billion) of funds for German drugmaker Merck KGaA to acquire Millipore Corp., Bloomberg data show. The bank also underwrote $13 billion of debt for Anheuser- Busch InBev NV, the biggest beer maker, a $10.2 billion deal for commodities trader Glencore International AG, and a 10 billion- euro revolving credit for Enel SpA, Italy’s biggest utility, Bloomberg data show. To contact the reporter on this story: Patricia Kuo in London at pkuo2@bloomberg.net

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Sweet Spot Found in Longest Maturities as Inflation Slows: Credit Markets

May 20, 2010

By John Detrixhe May 20 (Bloomberg) — The first decline in U.S. consumer prices in more than a year is driving investors to the longest- maturity bonds in a bet tame inflation will keep the Federal Reserve from raising interest rates this year. Investment-grade corporate debt due in 15 years or more has returned 3.89 percent since the start of April, beating all other maturity ranges as concern flared Greece’s deficit will spark a credit contagion and slow the global economy, according to Bank of America Merrill Lynch index data. Credit due in one to three years has gained 0.289 percent. The debt is luring buyers with yields 3.53 percentage points more than shorter-maturity bonds, among the widest spreads since 2003. Futures show traders are betting there’s a 39 percent chance Fed policy makers will raise their target rate for overnight loans between banks by at least a quarter- percentage point by their December meeting, down from a 63 percent probability a month ago. “The opportunity is on the long end of the curve,” said Burt White , chief investment officer at Boston-based LPL Financial Corp., which oversees $284 billion and has been buying corporate bonds maturing in 10 or more years in the past week. “The Fed’s going to be on the sidelines for a while and I think people are beginning to realize that now.” The 0.1 percent drop in the consumer price index in April marked the first decrease since March 2009, figures from the Labor Department showed yesterday in Washington. Excluding food and fuel, the so-called core rate was unchanged, capping the smallest 12-month gain in four decades. Slower inflation preserves the value of fixed-interest payments, especially for longer-maturity bonds. Short-Selling Ban Elsewhere in credit markets, company borrowing costs jumped in the wake of Germany’s short-selling ban, wiping out the decline that followed a $1 trillion loan package that was meant to stop Europe’s sovereign debt crisis from spreading. The extra yield investors demand to own global corporate bonds instead of government debt rose 5 basis points to 177 basis points, or 1.77 percentage point, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. That matches this year’s high reached May 7, the last working day before the European Union agreed on a 750 billion- euro ($927 billion) bailout for Greece, where the budget crisis started. Average yields on the bonds rose 2.8 basis points to 3.933 percent, the index data show. Merkel’s Move German regulator BaFin, seeking to calm Europe’s financial markets, on May 18 banned traders within the country from buying default protection on government bonds they don’t own. German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble host international talks on financial regulation today in Berlin. “Markets don’t like uncertainty, uncertainty breeds fear and that leads investors to look for higher-quality assets,” said John Anderson , who helps manage around 23 billion pounds ($33 billion) of assets as head of credit at Gartmore Investments in London. The cost of protecting against default on U.S. and European corporate bonds rose, with the Markit CDX North America Investment Grade Index Series 14 climbing 9.4 basis points to a mid-price of 122.8 basis points as of 11:26 a.m. in New York, according to Markit Group Ltd. In London, the Markit iTraxx Europe index of credit swaps on 125 investment-grade companies increased 7 basis points to 127.2, Markit prices show. Investors use the indexes to hedge against losses or to speculate on creditworthiness, and a rise signals a decline in perceptions of credit quality. Swaps Market ‘Skittish’ “The CDS market remains skittish and we expect further volatility,” Ken Hanton , a senior credit analyst at National Australia Bank Ltd., said in a phone interview from Sydney. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Dubai World agreed “in principle” with a group of creditor banks on terms to restructure $14.4 billion of loans. The state-owned holding company will pay $4.4 billion in five years and the remaining $10 billion in eight years, it said in an e-mailed statement. Banks will have the option to choose from combinations of loan maturities in dollar or dirhams that carry different interest rates. Including the Dubai government’s debt, the total liabilities being restructured is $23.5 billion. Government Holdings Bill Gross , who runs the world’s biggest bond fund at Pacific Investment Management Co. , increased holdings of U.S. government-related debt last month to the highest level since November. The $224.5 billion Total Return Fund ’s investment in government-related debt, which includes Treasuries, was boosted to 36 percent of assets in April, from 33 percent in the previous month, according to the Web site of Newport Beach, California-based Pimco. Non-U.S. developed-nation debt accounted for 13 percent, down from 18 percent in March and the least since it composed 5 percent of the assets in November. In emerging markets, bond spreads versus Treasuries increased 25 basis points to 340, the highest since October, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Tamer Inflation Tamer inflation increases the odds the Fed will stand pat on rates, said Kenneth Volpert , who oversees $275 billion as head of taxable fixed income at Vanguard Group in Valley Forge, Pennsylvania. The U.S. central bank has kept its target rate at zero to 0.25 percent since December 2008. “The uncertainty about what is going on in Europe is probably going to cause our recovery to be a little slower,” Volpert said. “Hiring plans may get pushed further down the road. There may be more anxiety among consumers that causes the recovery to be slower.” U.S. corporate bonds due in 15 years or more underperformed debt maturing in one to three years as recently as March, according to Bank of America Merrill Lynch index data. The longer-maturity bonds gained 0.128 percent that month, compared with a 0.298 percent return for the shorter-dated securities. The longer-maturity debt yielded 1.66 percentage points more than shorter-term bonds a year ago, the data show. The gap was 1.75 percentage points in 2008. Traders refer to the most attractive place to invest along the yield curve as the sweet spot. Debt of Assured Guaranty Ltd., the bond insurance company backed by billionaire Wilbur Ross , has returned 7.58 percent in May, the best in the Bank of America Merrill Lynch index of bonds due in 15 years or later. Assured Guaranty’s net income more than tripled to $322 million in the first quarter on the acquisition of a competitor last year, the Hamilton, Bermuda- based company said May 10. Pactiv Underperforms Debt issued by Pactiv Corp., the maker of Hefty trash bags, is the worst performing in the index, having lost 15.98 percent. Apollo Global Management LLC, run by billionaire Leon Black , is in talks to buy Lake Forest, Illinois-based Pactiv, a person with knowledge of the discussions said May 17. “The market has shifted from concerns about principal loss and a rising rate environment,” said John Milne , chief executive officer of JKMilne Asset Management, who oversees about $1.8 billion in Fort Myers, Florida. “That’s the result of the expectation that rates are going to be fairly stable and low.” To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Sweet Spot Found in Longest Maturities as Inflation Slows: Credit Markets

May 20, 2010

By John Detrixhe May 20 (Bloomberg) — The first decline in U.S. consumer prices in more than a year is driving investors to the longest- maturity bonds in a bet tame inflation will keep the Federal Reserve from raising interest rates this year. Investment-grade corporate debt due in 15 years or more has returned 3.89 percent since the start of April, beating all other maturity ranges as concern flared Greece’s deficit will spark a credit contagion and slow the global economy, according to Bank of America Merrill Lynch index data. Credit due in one to three years has gained 0.289 percent. The debt is luring buyers with yields 3.53 percentage points more than shorter-maturity bonds, among the widest spreads since 2003. Futures show traders are betting there’s a 39 percent chance Fed policy makers will raise their target rate for overnight loans between banks by at least a quarter- percentage point by their December meeting, down from a 63 percent probability a month ago. “The opportunity is on the long end of the curve,” said Burt White , chief investment officer at Boston-based LPL Financial Corp., which oversees $284 billion and has been buying corporate bonds maturing in 10 or more years in the past week. “The Fed’s going to be on the sidelines for a while and I think people are beginning to realize that now.” The 0.1 percent drop in the consumer price index in April marked the first decrease since March 2009, figures from the Labor Department showed yesterday in Washington. Excluding food and fuel, the so-called core rate was unchanged, capping the smallest 12-month gain in four decades. Slower inflation preserves the value of fixed-interest payments, especially for longer-maturity bonds. Short-Selling Ban Elsewhere in credit markets, company borrowing costs jumped in the wake of Germany’s short-selling ban, wiping out the decline that followed a $1 trillion loan package that was meant to stop Europe’s sovereign debt crisis from spreading. The extra yield investors demand to own global corporate bonds instead of government debt rose 5 basis points to 177 basis points, or 1.77 percentage point, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. That matches this year’s high reached May 7, the last working day before the European Union agreed on a 750 billion- euro ($927 billion) bailout for Greece, where the budget crisis started. Average yields on the bonds rose 2.8 basis points to 3.933 percent, the index data show. Merkel’s Move German regulator BaFin, seeking to calm Europe’s financial markets, on May 18 banned traders within the country from buying default protection on government bonds they don’t own. German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble host international talks on financial regulation today in Berlin. “Markets don’t like uncertainty, uncertainty breeds fear and that leads investors to look for higher-quality assets,” said John Anderson , who helps manage around 23 billion pounds ($33 billion) of assets as head of credit at Gartmore Investments in London. The cost of protecting against default on U.S. and European corporate bonds rose, with the Markit CDX North America Investment Grade Index Series 14 climbing 9.4 basis points to a mid-price of 122.8 basis points as of 11:26 a.m. in New York, according to Markit Group Ltd. In London, the Markit iTraxx Europe index of credit swaps on 125 investment-grade companies increased 7 basis points to 127.2, Markit prices show. Investors use the indexes to hedge against losses or to speculate on creditworthiness, and a rise signals a decline in perceptions of credit quality. Swaps Market ‘Skittish’ “The CDS market remains skittish and we expect further volatility,” Ken Hanton , a senior credit analyst at National Australia Bank Ltd., said in a phone interview from Sydney. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Dubai World agreed “in principle” with a group of creditor banks on terms to restructure $14.4 billion of loans. The state-owned holding company will pay $4.4 billion in five years and the remaining $10 billion in eight years, it said in an e-mailed statement. Banks will have the option to choose from combinations of loan maturities in dollar or dirhams that carry different interest rates. Including the Dubai government’s debt, the total liabilities being restructured is $23.5 billion. Government Holdings Bill Gross , who runs the world’s biggest bond fund at Pacific Investment Management Co. , increased holdings of U.S. government-related debt last month to the highest level since November. The $224.5 billion Total Return Fund ’s investment in government-related debt, which includes Treasuries, was boosted to 36 percent of assets in April, from 33 percent in the previous month, according to the Web site of Newport Beach, California-based Pimco. Non-U.S. developed-nation debt accounted for 13 percent, down from 18 percent in March and the least since it composed 5 percent of the assets in November. In emerging markets, bond spreads versus Treasuries increased 25 basis points to 340, the highest since October, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Tamer Inflation Tamer inflation increases the odds the Fed will stand pat on rates, said Kenneth Volpert , who oversees $275 billion as head of taxable fixed income at Vanguard Group in Valley Forge, Pennsylvania. The U.S. central bank has kept its target rate at zero to 0.25 percent since December 2008. “The uncertainty about what is going on in Europe is probably going to cause our recovery to be a little slower,” Volpert said. “Hiring plans may get pushed further down the road. There may be more anxiety among consumers that causes the recovery to be slower.” U.S. corporate bonds due in 15 years or more underperformed debt maturing in one to three years as recently as March, according to Bank of America Merrill Lynch index data. The longer-maturity bonds gained 0.128 percent that month, compared with a 0.298 percent return for the shorter-dated securities. The longer-maturity debt yielded 1.66 percentage points more than shorter-term bonds a year ago, the data show. The gap was 1.75 percentage points in 2008. Traders refer to the most attractive place to invest along the yield curve as the sweet spot. Debt of Assured Guaranty Ltd., the bond insurance company backed by billionaire Wilbur Ross , has returned 7.58 percent in May, the best in the Bank of America Merrill Lynch index of bonds due in 15 years or later. Assured Guaranty’s net income more than tripled to $322 million in the first quarter on the acquisition of a competitor last year, the Hamilton, Bermuda- based company said May 10. Pactiv Underperforms Debt issued by Pactiv Corp., the maker of Hefty trash bags, is the worst performing in the index, having lost 15.98 percent. Apollo Global Management LLC, run by billionaire Leon Black , is in talks to buy Lake Forest, Illinois-based Pactiv, a person with knowledge of the discussions said May 17. “The market has shifted from concerns about principal loss and a rising rate environment,” said John Milne , chief executive officer of JKMilne Asset Management, who oversees about $1.8 billion in Fort Myers, Florida. “That’s the result of the expectation that rates are going to be fairly stable and low.” To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Company Borrowing Costs Lose Benefit of $1 Trillion Rescue on Germany Plan

May 20, 2010

By John Glover May 20 (Bloomberg) — Company borrowing costs jumped the most in two weeks after Germany’s short-selling ban , wiping out declines triggered by Europe’s $1 trillion aid package that was meant to halt contagion from the sovereign debt crisis. The yield premium investors demand to hold investment-grade bonds rather than similar-maturity government debt rose 5 basis points to 177, the highest this year, and equal to the level before the emergency loan was agreed May 10, Bank of America Merrill Lynch index data show. Spreads on high-yield notes widened 16 basis points to 675, the most since March 2. “What investors need most of all is security and predictability, but they are getting ever less,” said Ciaran O’Hagan , a strategist at Societe Generale SA in Paris. “Instead they are vilified as sharks, wolves or locusts, while governments rack up ever higher debt and contingent liabilities.” Germany’s unilateral ban on so-called naked short-selling of some bank stock and the outlawing of speculation on government bonds using credit-default swaps has shaken investor confidence. European stocks slid for a sixth day and the euro weakened on concern that the lack of a united platform from lawmakers will prompt investors to move assets to other markets. Investment-grade spreads in Europe are within one basis point of where they were on May 7, gaining 8 basis points to 185 basis points, according to the Bank of America Merrill Lynch indexes. Junk bond spreads rose 34 basis points to 762 basis points, matching the May 7 level and the most since March 2. Demand Freeze “There’s been a freeze in demand for risk assets,” said Simon Ballard , a strategist at Royal Bank of Canada in London. “The credit market is like a rabbit caught in the headlights.” Bond issuance in Europe is the slowest on record this week, with 520 million euros ($644 million) of notes sold, according to data compiled by Bloomberg. Globally, $9.1 billion of corporate bonds have been sold, the slowest week of the year. German Chancellor Angela Merkel ’s unilateral effort to control what she called “destructive” markets came 10 days after voters angry at aid for Greece dealt her an electoral setback that cost her control of the federal upper house of Parliament. She’s now trying to win support for Germany’s share of the loan package, due to go to a parliamentary vote tomorrow. France, the Netherlands and Finland said they have no plans to implement similar measures, leaving Merkel isolated. ‘Political Interference’ “One thing the markets really don’t like is political interference, and that’s what the German announcement smacked of,” said Tim Barker , head of credit research at Aviva Investors in London. “Investors are trying to come to terms with political uncertainty.” Investors have cash and would be willing to invest if the right issuers come to market, according to Louis Gargour , chief investment officer at hedge fund LNG Capital LLP in London. They have been moving assets out of some of the most indebted countries such as Spain, Portugal and Greece, he said. “Default rates are falling and earnings have been good,” said Gargour. “We are not seeing any liquidation of portfolios, but there has been an increase in cash balances.” Short sellers borrow assets and sell them, betting the price will fall, seeking to buy them later and pocket the difference. In naked short-selling, traders never borrow the assets, so betting is unlimited. High-yield, or junk, debt is ranked below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s. To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

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Sweet Spot Found in Longest Maturities as Inflation Falls: Credit Markets

May 19, 2010

By John Detrixhe May 19 (Bloomberg) — The first decline in U.S. consumer prices in more than a year is driving investors to the longest- maturity bonds in a bet that tame inflation will keep the Federal Reserve from raising interest rates this year. Investment-grade corporate debt due in 15 years or more has beaten all other maturity ranges since the start of April, when concern flared that Greece’s deficit might spark a credit contagion and slow the global economy, gaining 3.89 percent, according to Bank of America Merrill Lynch index data. Credit due in 1 to 3 years has gained 0.289 percent. The debt is luring buyers with yields holding at some of the highest levels relative to shorter-term debt since 2003. Futures show traders place a 38 percent chance that Fed policy makers will raise their target rate for overnight loans between banks by at least a quarter-percentage point by their December meeting, down from a 58 percent probability a month ago. “The opportunity is on the long end of the curve,” said Burt White , chief investment officer at Boston-based LPL Financial Corp., which oversees $284 billion and has been buying corporate bonds maturing in 10 or more years in the past week. “The Fed’s going to be on the sidelines for a while and I think people are beginning to realize that now.” The 0.1 percent fall in the consumer price index in April marked the first decrease since March 2009, figures from the Labor Department showed today in Washington. Excluding food and fuel, the so-called core rate was unchanged, capping the smallest 12-month gain in four decades. Slower inflation preserves the value of fixed-interest payments, especially for longer-maturity bonds. ‘Economic Slack’ “Even though the recovery appeared to be continuing and was expected to strengthen gradually over time, most members projected that economic slack would continue to be quite elevated for some time,” the Fed said in minutes of its April 27-28 meeting in Washington, released today. Elsewhere in credit markets, spreads on U.S. mortgage securities with government guarantees narrowed after the release of Fed minutes showing policy makers were in no rush to sell $1.25 trillion of the assets. Navistar International Corp. began marketing $919 million of bonds backed by loans on trucks, buses and trailers in its first offering since a Fed program to jumpstart lending ended. Elgin Capital LLP said it plans to start buying high-yielding U.S. bankruptcy loans for three of its collateralized loan obligations. The difference between yields on Washington-based Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds and 10- year Treasuries fell about 0.01 percentage point to 0.78 percentage point, according to data compiled by Bloomberg. The gap, which rose as high as 0.83 percentage point earlier today as Europe’s debt crisis roiled markets, reached a record low of 0.59 percentage point on March 29. Navistar, Nissan Navistar , based in Warrenville, Illinois, last sold asset- backed securities on Jan. 27, issuing notes tied to payments on inventory loans through the Fed’s Term Asset-Backed Securities Loan Facility, which expired in March. Nissan Motor Corp. of Yokohama, Japan, the country’s third- largest carmaker, sold $750 million of debt tied to auto leases, while Banco Santander SA, Spain’s biggest bank, is marketing $1 billion of similar bonds. “The market has been generally receptive to asset-backed deals,” said Chris Sullivan , who oversees $1.6 billion as chief investment officer at United Nations Federal Credit Union in New York. “There is a lot of credit protection built into the Navistar deal. This kind of instrument is attractive in an environment of uncertainty in credit markets.” The rate banks pay for three-month loans in dollars rose to the most in more than nine months. The London interbank offered rate, or Libor, increased for a seventh straight day, climbing to 0.478 percent, the highest since July 31, from 0.465 percent, according to data from the British Bankers’ Association. Libor-OIS Spread The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, rose to 24.9 basis points from 23.7 basis points yesterday. The spread was as narrow as 6 basis points in mid- March. A basis point is 0.01 percentage point. Elgin, a London-based asset manager, is seeking to add so- called debtor-in-possession, or DIP, loans to the pool of collateral backing its Dalradian European CLO transactions II, III and IV, the company said in a note to investors. DIP loans are a type of financing for insolvent companies that are repaid before other creditors. CLOs package high-yield loans into securities of varying risk and return. High-yield, or junk, loans are rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s. Credit-Default Swaps A gauge of U.S. corporate credit risk fell, with the Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses or to speculate on creditworthiness, declining 7.4 basis points to a mid-price of 113.3 basis points, according to Markit Group Ltd. In London, the Markit iTraxx Europe index of credit swaps on 125 investment-grade companies climbed 7.7 basis points to a mid- price of 118.75, Markit prices show. Both indexes typically fall as investor confidence improves and rise as it deteriorates. Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. In emerging markets, the extra yield investors demand to own bonds instead of Treasuries increased 6 basis points to 316 basis points, the most since May 7 when the spread rose to 328, the highest this year, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Sweet Spot Argentine bonds declined for a fourth day. The yield on Argentina’s 7 percent dollar bonds due in 2015 rose 30 basis points to 13.84 percent as of 4:37 p.m. in New York, according to Bloomberg pricing. The bond’s price fell 0.86 cents to 75.67 cents on the dollar. Tamer inflation increases the odds that the Fed will stand pat on rates, said Kenneth Volpert , who oversees $275 billion as head of taxable fixed income at Vanguard Group in Valley Forge, Pennsylvania. The U.S. central bank has kept its target rate at zero to 0.25 percent since December 2008. “The uncertainty about what is going on in Europe is probably going to cause our recovery to be a little slower,” Volpert said. “Hiring plans may get pushed further down the road. There may be more anxiety among consumers that causes the recovery to be slower.” Traders refer to the most attractive place to invest along the yield curve as the sweet spot. Corporate bonds due in 15 years or more yield 3.53 percentage points more than those due in 1 to 3 years, according to Bank of America Merrill Lynch index data. That compares with a gap of 1.66 percentage points a year ago and 1.75 percentage points in 2008. Assured Guaranty U.S. corporate bonds due in 15 years or more underperformed debt maturing in 1 to 3 years as recently as March, Bank of America Merrill Lynch index data show. The longer-maturity bonds gained 0.128 percent that month, compared with a 0.298 percent return for the shorter-dated securities. Debt of Assured Guaranty Ltd., the bond insurance company backed by billionaire Wilbur Ross , has returned 7.58 percent in May, the best in the Bank of America Merrill Lynch index of bonds due in 15 year or later. Assured Guaranty’s net income more than tripled to $322 million in the first quarter on the acquisition of a competitor last year, the Hamilton, Bermuda- based company said May 10. Debt issued by Pactiv Corp., the maker of Hefty trash bags, is the worst performing in the index, having lost 15.98 percent. Apollo Global Management LLC, run by billionaire Leon Black, is in talks to buy Lake Forest, Illinois-based Pactiv, a person with knowledge of the discussions said May 17. “The market has shifted from concerns about principal loss and a rising rate environment,” said John Milne , chief executive officer of JKMilne Asset Management, who oversees about $1.8 billion in Fort Myers, Florida. “That’s the result of the expectation that rates are going to be fairly stable and low.” To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Video: Blanch Sees Short Term `Soft Patch’ for Oil; Likes Gold: Video

May 14, 2010

May 14 (Bloomberg) — Francisco Blanch, global head of commodities research at Bank of America Merrill Lynch, talks with Bloomberg’s Carol Massar about the outlook for oil and gold. (Source: Bloomberg)

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Insurers Drag Bonds Down to Worst Month Since December ’09: Credit Markets

May 13, 2010

By John Glover May 14 (Bloomberg) — Insurers are leading the first monthly decline for corporate bonds since December on speculation they face losses on sovereign debt just as cleanup costs for the Gulf of Mexico oil spill loom. American International Group Inc. and Axa SA are among insurers whose bonds lost 1.09 percent including reinvested interest, according to Bank of America Merrill Lynch index data. That compares with the negative 0.83 percent return on debt issued by energy companies hit by BP Plc ’s oil rig explosion and the 0.68 percent loss on notes from banks, also big holders of debt of troubled European nations. Europe’s largest insurers hold more than 95 billion euros ($120 billion) of bonds issued by countries in the region whose struggle to fund record budget deficits prompted a $1 trillion international rescue, CreditSights Inc. data show. The Gulf oil leak from the explosion of the Deepwater Horizon rig may cost $12.5 billion to clean up, according to Sanford C. Bernstein & Co. analysts. “The insurers’ declines are primarily down to sovereign debt concerns because they’re investors in government bonds, agencies and so on,” said Luis Maglanoc , head of credit research at UniCredit SpA in Munich. “The costs of the Gulf accident are likely to be indirect, as people claim for injury or loss of livelihood for example, and will be in the future.” The extra yield over Treasuries that investors demand to hold bonds of AIG , the insurer rescued by the U.S. government, increased an average 105 basis points to 355 basis points since April 19, according to Bank of America Merrill Lynch index data. That’s the day before the Deepwater Horizon blew up. The spread on the notes widened 88 basis points this month. Credit Risk Falls Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of government debt fell 1 basis point yesterday to 168 basis points, after soaring 28 basis points last week, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. The spread peaked at 511 on March 30, 2009, and dropped to as low as 142 on April 21. An indicator of U.S. corporate credit risk is on track for the biggest weekly drop since May 2009 after European leaders agreed to the almost $1 trillion aid package to prevent a sovereign-debt collapse. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 3.4 basis points to a mid-price of 101 basis points as of 5:23 p.m. in New York, according to Markit Group Ltd. The index dropped from 119 basis points on May 7. The retreat shows that investor sentiment has calmed following the Europe-driven rout last week that broadly pushed credit swaps to the highest in at least 10 months. Bond Issuance Rises Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. The contracts typically rise as investor confidence deteriorates and falls as it improves. Global corporate bond issuance this week rose to at least $14.1 billion, compared with $10.3 billion last week, according to data compiled by Bloomberg. CVS Caremark Corp., PNC Financial Services Group Inc. and FPL Group Inc. , owner of Florida’s largest utility, led debt sales in the U.S. yesterday. CVS , the largest U.S. distributor of prescription drugs, sold $1 billion of securities in maturities of 5 and 10 years, Bloomberg data show. The $550 million of 5-year notes yield 100 basis points, or 1 percentage point more than similar maturity Treasuries. The 10-year bonds yield a 125 basis point spread. Leveraged Loans Prices on the Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index , which tracks the 100 largest dollar-denominated first-lien leveraged loans, rose 0.26 cent on the dollar this week to 91.15 cents. The index has risen 54 percent from 59.2 cents on Dec. 17, 2008 and is down from its April 26 high of 92.9 cents. More than $110 billion in U.S. leveraged loans have been arranged this year, according to Bloomberg data, up from $33.9 billion during the comparable period in 2009. Over $370 billion of U.S. leveraged loans were arranged during the period in 2007. Renal Advantage Inc., a provider of outpatient dialysis services, is seeking $305 million of bank debt to pay a dividend and refinance debt, according to a person familiar with the transaction. Deutsche Bank AG, Barclays Plc, Bank of America Corp. and General Electric Co.’s financing unit are arranging a six-year $245 million term loan and a $60 million revolving credit line for the Brentwood, Tennessee-based company, said the person, who declined to be identified because the terms are private. Emerging-Market Bonds The extra yield investors demand to own emerging-market bonds instead of Treasuries is heading for its biggest weekly drop in nine months. Spreads fell 49 basis points since May 7 to 276, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Gol Linhas Aereas Inteligentes is beating its biggest rival, Tam SA, in the bond market as Brazil’s economic growth accelerates amid a four-month rally in the real. Gol’s 7.5 percent bonds due in 2017 yield 7.72 percent, or 81 basis points less than Tam’s similar-maturity notes, after yielding 476 basis points more a year ago, according Bloomberg data. The relationship between the nation’s two largest airlines reversed because Gol gets 89 percent of its paid passenger miles from domestic business while Tam receives 41 percent of its miles from international business, according to April figures. The real’s 6.8 percent gain since Feb. 1 has reduced fuel and debt-servicing costs for Gol while hampering Tam’s revenue growth. Libor Increase The rate banks pay for three-month loans in dollars rose to the highest in nine months as concern over the quality of collateral needed to secure loans heightened financial institutions’ reluctance to lend. The London interbank offered rate, or Libor , for such loans climbed to 0.436 percent yesterday from 0.43 percent May 12, the most since Aug. 13, according to data from the British Bankers’ Association. Libor rises when banks become more hesitant to lend to potentially risky counterparties. The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, widened for a fifth consecutive day, reaching the most since Aug. 20. Libor has risen 16 of the past 17 days as the euro-area’s debt crisis stoked concern that regional banks’ holdings of bonds from countries struggling to cut their budget deficits, such as Greece, Portugal and Spain, will deteriorate in quality. The rate stabilized this week after the European Union announced the rescue plan. ‘Upward Drift’ “There is a natural upward drift in rates on a long-term basis,” said Marc Ostwald , a fixed-income strategist at Monument Securities Ltd in London. “There’s an underlying realization that counterparty risk is still there.” AIG said May 7 it paid about $20 million tied to property claims related to the oil spillage. The New York-based insurer said that while it couldn’t estimate casualty losses tied to the event until the cause is determined, the liabilities could have a “material adverse effect” on its results. The spill may cost insurers as much as $1.5 billion in claims, according to Transatlantic Holdings Inc. , the reinsurer sold by AIG. PartnerRe Ltd., the reinsurer that purchased Paris Re Holdings Ltd., faces claims of $60 million to $70 million, it said in an April 29 statement. Rig Explosion “Notably, Deepwater Horizon explosion losses could be an issue” for property and casualty insurers in the second quarter, Jay Gelb , an analyst at Barclays in New York, said in a note on April 30. Gelb called first-quarter earnings “mixed so far,” with premium income declining and price erosion in commercial insurance as underwriters go after new business “aggressively.” Average spreads on bonds of Axa have widened 36 basis points to 259 basis points, according to Bank of America index data. The Paris-based company has 9.6 billion euros of southern European government bonds, including 4 billion euros of Italian debt, according to New York-based CreditSights. Spreads on bonds of Aviva Plc, the U.K.’s second-biggest insurer, have widened 33 basis points to 387 basis points on average this month. Aviva is the U.K. insurer with the largest amount of government bonds, according to Bernstein Research. Insurance companies’ holdings of government bonds are closely linked to where they are based and European companies typically hold a bigger proportion of bonds than equities, said David Prowse, an analyst at Fitch Ratings in London. Of the bond holdings, about half is in government securities, he said. Assicurazioni Generali SpA , Europe’s third-biggest insurer, has 46.5 billion euros of Italian government bonds out of its 48.75 billion euros of southern European government debt, according to CreditSights. Spreads on Trieste, Italy-based Generali’s bonds have widened 46 basis points this month on average. European insurers hold 6 billion euros of bonds sold by Greece, whose debt crisis sparked a plunge in the securities of the region’s so-called peripheral nations, according to CreditSights. To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

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Build America Weekly Bond Sales Top $100 Billion in First Time Since Debut

May 12, 2010

By Catarina Saraiva May 12 (Bloomberg) — Build America Bond sales exceeded $100 billion this week, 13 months after the first issuance of the taxable securities. The bonds are the fastest-growing part of the $2.8 trillion municipal market, making up about 26 percent of issuance this year , according to data compiled by Bloomberg. The securities were created as part of last year’s federal economic stimulus package to help state and local governments lower borrowing costs for public works. The program provides issuers with a 35 percent federal subsidy on interest costs. Issuers from Illinois, North Carolina, Colorado and Arizona helped sell enough Build America Bonds to push the total past $100.1 billion this week, according to Bloomberg data. About $65 billion of the securities were sold last year out of a total of $378.5 billion in municipal issuance, Bloomberg data show. “It represents about a third of the supply of municipal issuance,” said Chris Ihlefeld , who helps manage $5 billion of municipal bonds at Santa Fe, New Mexico-based Thornburg Investment Management Inc. “That’s a very meaningful number.” Build America Bonds have returned 8.9 percent this year, according to a Bank of America Merrill Lynch index. That compares with the 2.75 percent gain on the overall municipal market, according to BofA Merrill Lynch’s Municipal Master Index. Average yields on Build Americas climbed to 5.93 percent yesterday from a nine-month low of 5.61 percent on May 6. Top- rated tax-exempt yields range from 3.18 percent on a 10-year security to 4.56 percent on a 30-year, according to Concord, Massachusetts-based Municipal Market Advisors Inc. Issuers’ Choice The debt reduced tax-exempt bond sales as issuers opted for the subsidized security, Ihlefeld said. It also drew new investors to the market. Foreign buyers boosted municipal holdings by about 50 percent last year, to $60.6 billion, according to Federal Reserve data. The majority of the buying was in Build Americas, according to Guy LeBas , Janney Montgomery Scott LLC’s chief fixed-income strategist in Philadelphia. “The goal of the Recovery Act program was to encourage state and local governments to launch building projects and put people back to work,” said Alan Krueger , the Treasury Department’s chief economist, in an interview today. “The fact that issuance has surpassed $100 billion is an indication of how successful it’s been in achieving that goal.” Build America Bonds saved issuers about $12 billion in the program’s first year, relative to tax-exempts, according to a Treasury statement last week. The U.S. House of Representatives in March approved an extension to the Build America program until April 2013. The bill would reduce the federal subsidy from 35 percent to 33 percent in 2011, 31 percent in 2012 and 30 percent in 2013, according to a congressional summary. President Barack Obama has proposed reducing the subsidy to 28 percent. To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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Default Swaps Plummet After EU Goes `All In’ to Save Euro: Credit Markets

May 10, 2010

By Abigail Moses and Shannon D. Harrington May 10 (Bloomberg) — Credit markets rallied around the world after the European Union agreed a sovereign aid package worth almost $1 trillion along with government bond purchases to halt the debt crisis. “There has been a poker game going on between the markets and the EU,” said Gary Jenkins , the head of credit strategy at Evolution Securities Ltd. in London. “This is probably reaching a climax as the EU has just gone ‘all in.’” The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings tumbled 33.5 basis points to 99.5, with banks leading the biggest one-day decline, according to Markit Group Ltd. Swaps on Greece fell 258.5 basis points to 657, Portugal dropped 162 to 263 and Spain declined 81.5 to 157, according to CMA DataVision. Contracts on France, Germany and the U.K. also fell. European policy makers stepped up efforts to prevent a sovereign-debt collapse and muffle speculation the 11-year-old euro could break apart. The measures came after contagion from Greece drove the common currency to a 14-month low, infecting the bank funding system and threatening to slow the global economic recovery as borrowing costs rose from the U.S. to Asia. The package offers as much as 750 billion euros ($962 billion), including International Monetary Fund backing, to countries facing instability and the European Central Bank said it will buy government and private debt. The Federal Reserve said it authorized temporary currency swaps with other central banks in response to the “re-emergence of strains” in Europe. ‘Nuclear Option’ “EMU politicians and the ECB have now pressed the nuclear option,” said Padhraic Garvey , a strategist at ING Groep NV in Amsterdam. “The central question from here is whether the cumulative measures can manage to stabilize the system.” Bond risk tumbled in Asia, with the cost of protecting corporate and sovereign debt from default dropping the most since Nov. 2008. The Markit iTraxx Asia index declined 35 basis points to 110, CMA prices show. Stocks surged around the world, the euro strengthened and commodities gained on speculation the aid fund will underpin economic growth and ease the crisis that on May 7 drove the interest rate financial companies charge each other for three- month loans in dollars to the highest since August. Yields on corporate debt climbed last week by the most relative to government securities since Lehman Brothers Holdings Inc.’s bankruptcy in September 2008, according to Bank of America Merrill Lynch indexes. Bond Issuance Global corporate bond issuance plummeted to $9.4 billion last week, the least this year, following $30.1 billion in the previous five-day period and $47.9 billion in the week ended April 23, according to data compiled by Bloomberg. JPMorgan Chase & Co. said in a May 7 report it’s ending a recommendation that investors own a greater percentage of junk bonds than contained in benchmark indexes. The three-month London interbank offered rate in dollars, the rate banks pay for loans, jumped 5.5 basis points to 0.428 percent on May 7. It climbed 8.2 basis points on the week, the biggest increase since October 2008. “There were a lot of people who didn’t realize how fully interrelated and large” the problems caused by the sovereign fiscal crisis were, said Brian Yelvington , head of fixed-income strategy at broker-dealer Knight Libertas LLC in Greenwich, Connecticut. The spread between three-month dollar Libor and the overnight indexed swap rate, a barometer of the reluctance of banks to lend, has jumped to 18.1 basis points, three times the 6 basis-point spread on March 15 and the highest since August. Swap Rates Swap rates are typically higher than government yields because the floating payments are based on rates, such as the euro interbank offered rate, or Euribor, that contain credit risk. Swap rates serve as benchmarks for investors in debt including mortgage-backed and auto-loan bonds. The rate at which Royal Bank of Scotland Group Plc told the British Bankers Association it could borrow for three months jumped 14 basis points last week to 0.5 percentage point. Barclays reported rates that increased 11 basis points to 0.45, while Societe Generale SA, France’s second-largest bank by market value, said its climbed 8 basis points to 0.45 percentage point. Rates being charged for short-term loans are still more than 90 percent below the record levels in 2008, as banks are in better shape to weather a market seizure than when the U.S. subprime mortgage market collapsed. The Libor-OIS spread reached a record 364 basis points in October 2008. “The price action is probably as bad as anything we saw in September ‘08,” James Palmisciano , chief investment officer of the $1.7 billion Gracie Credit Fund in New York, said before the European policy makers announced the loan package. Corporate Debt The extra yield investors demand to own corporate debt instead of government securities soared 28 basis points to 177 basis points, or 1.77 percentage point, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The index, which peaked at 511 basis points in March 2009, dropped to as low as 142 on April 21. Spreads on European bank bonds widened 48 basis points last week to 238 as of May 7, the highest since September, according to Bank of America Merrill Lynch’s EMU Financial Corporate index. The index’s 1 percent loss this month follows returns of 0.49 percent in April and 1.12 percent in March. Europe’s debt-ridden nations still have to raise almost 2 trillion euros within the next three years to refinance maturing bonds and fund deficits. Led by Italy’s $126 billion, Greece, Spain, Portugal, Ireland and Italy have a total of $215 billion of debt coming due in the next three months, according to JPMorgan. “Credit investors should not overlook that this is more of a sovereign bailout rather than a private sector bailout,” Philip Gisdakis , the head of credit strategy at UniCredit SpA in Munich, wrote in a note to investors. “The austerity measures that will be part of the program will have a negative impact on corporate spreads.” To contact the reporters on this story: Shannon D. Harrington in New York at sharrington6@bloomberg.net ; Abigail Moses in London at Amoses5@bloomberg.net

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Video: BoA’s Wraith Sees Cameron Forming Minority Government

May 6, 2010

May 7 (Bloomberg) — John Wraith, U.K. fixed-income strategist at Bank of America Merrill Lynch, talks with Bloomberg’s Linzie Janis about the U.K. election and the chances of the Conservatives forming a minority government. (Excerpt. Source: Bloomberg)

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Warburg, Silver Lake to Buy Interactive Data From Pearson for $3.4 Billion

May 4, 2010

By Kristen Schweizer May 4 (Bloomberg) — Warburg Pincus LLC and Silver Lake agreed to buy Pearson Plc ’s Interactive Data Corp., a provider of financial market data and services, for $3.4 billion, in the biggest private-equity deal this year. IDC shareholders will get $33.86 for each share they own, London-based Pearson said in a statement today. Pearson will receive about $2 billion before tax for its 61 percent IDC stake, it said. The price is 32.9 percent more than IDC’s closing share price on Jan. 14, 2010, the last trading day before Pearson said it was seeking alternatives for the unit. “The price is better than expected, which is encouraging and this signals re-entry of private equity into deal flow and the media sector,” said Alex DeGroote , an analyst at Panmure Gordon & Co. in London. The deal had been estimated at about $3.1 billion, he said. Buyouts are picking up after U.S. stocks rose 30 percent the past year and a rally in credit markets fueled lending. Pearson, which owns the Financial Times newspaper and Penguin Books, said it will use proceeds from the IDC sale to expand through bolt-on acquisitions, with a particular focus on technology and education assets. The company gets 65 percent of its revenue from education businesses. “Pearson and Interactive Data have extensive growth opportunities and ambitious expansion plans, and we believe this transaction will give both companies greater focus and opportunity to invest more in their strong market positions,” Pearson Chief Executive Officer Marjorie Scardino said in the statement. Better Than Expected Pearson shares rose as much as 1.7 percent and were trading 1.6 percent lower at 1,034 pence as of 11:14 a.m. in London. Interactive Data, based in Bedford, Massachusetts, fell 1.4 percent to $32.99 a share in New York trading yesterday, valuing the company at $3.1 billion. Pearson’s indication it will buy more assets with the proceeds rather than give money back to shareholders may mean the company has some deals already lined up, DeGroote said. “As a rule of thumb you want to always sell on good news,” he said. “Secondly, you’d want to take your money out now because you don’t know what Pearson will buy and at what price.” Silver Lake and Warburg Pincus will fund the acquisition with equity investments and debt to be provided by Bank of America Merrill Lynch, Barclays Bank Plc, Credit Suisse Group AG, and UBS AG , according to the statement. The transaction is expected to be closed by the end of the third quarter. IDC’s Performance Interactive Data contributed 484 million pounds ($735 million) in revenue and 148 million pounds in operating profit to Pearson last year, the U.K. company said today. After tax and minority interests, IDC’s adjusted earnings were 55 million pounds, or 6.8 pence a share. “This transaction enables Interactive Data’s shareholders to realize substantial value and provides the company with partners who are committed to supporting it global expansion,” said Rona Fairhead , IDC’s chairman. For Related News and Information: Link to Company News: PSON LN CN Top Stories on media and technology: TTOP Pearson comparative returns: PSON LN COMP Pearson financial analysis: PSON LN FA Pearson analyst estimates: PSON LN EEO

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Nickel Peaking as China Prefers Pig Iron Over 2010′s Best Metal Investment

May 3, 2010

By Anna Stablum and Glenys Sim May 4 (Bloomberg) — Nickel, this year’s best-performing commodity, is poised to decline as world supplies climb at the fastest pace in a decade and China’s search for lower-cost alternatives slows demand growth. Vale SA’s $4.3 billion Goro mine in New Caledonia is scheduled to start this year. Global output will jump 6.8 percent, the most since 2000, said Bank of America Merrill Lynch. China, the biggest consumer, more than tripled production of the cheaper nickel pig iron in the first quarter, said Wang Chongfeng , a Shanghai Metals Market analyst. Nickel has climbed so much that the 5-cent U.S. coin contains 6 cents worth of metal and prices are 59 percent above mining companies’ breakeven level. The commodity, which beat the other 23 futures in the Standard & Poor’s GSCI Index, will drop 19 percent by the third quarter to $21,250 a ton, according to the median estimate of 17 analysts surveyed by Bloomberg News. “The price is way ahead of itself and will serve as nirvana for world nickel producers,” said Nick Moore , head of commodity strategy at Royal Bank of Scotland Group Plc in London, who has followed metals for more than 25 years. “The higher the price, the more likely a deluge of supply comes to market.” The commodity for three-month delivery advanced 42 percent this year and reached a 23-month high of $27,595 a ton on the London Metal Exchange April 16 after stainless steelmakers boosted output by the most since at least the early 1970s, according to Macquarie Group Ltd. The metal, which helps protect steel from corrosion, finished at $26,300 a ton on April 30. Stainless Steel World stainless steel output jumped 55 percent in the first three months to 7.9 million tons from a year earlier, and will increase 20 percent to 31 million tons in 2010, the biggest gain since 1976, Macquarie said. A reversal would cut costs for manufacturers of everything from kitchen sinks to aircraft fuel tanks, while hurting profits for OAO GMK Norilsk Nickel of Russia, the world’s biggest maker, whose shares jumped 132 percent in the past year. Mining companies need at least $7.50 a pound, or $16,535 a ton, to spur new production, according to Peter Richardson , chief metals economist for Morgan Stanley Australia Ltd. in Melbourne. World refined output will probably climb 6.8 percent to 1.38 million tons this year, said Michael Widmer , head of metals market research at Bank of America Merrill Lynch. The Goro mine will add almost 60,000 tons once it runs at capacity, which may take “two plus years,” Peter Poppinga , executive vice president Asia and Pacific for Vale ’s nickel unit, said in March. The company expects to begin operations this year, Toronto-based spokesman Cory McPhee said in e-mails last week. Vale’s Sudbury Vale, the fourth-biggest maker in 2009, may restore output at its Sudbury smelter in Canada, which has operated at 50 percent capacity since January after workers walked out in July. The company planned to boost production at its Clydach refinery in Wales to capacity by the end of last week, taking semi- processed metal from its Sudbury operations, McPhee said. Global mine supply may increase by 114,000 tons this year, including new output from Talvivaara Mining Co.’s operation in Finland, Jinchuan Group Ltd.’s Munali mine in Zambia, and Western Areas NL’s Forrestania project in Australia, said Widmer. “We think prices will soften, peaking in the second quarter and gradually easing,” said David Wilson , director of metals research at Societe Generale SA, and previously Norilsk’s senior economist for almost four years. Stockpiles, Disruptions The biggest risks to users are the drop in stockpiles since February, sustained demand from steelmakers and mine or smelter disruptions. Prices are likely to remain “well supported for longer than the market currently expects,” said Morgan Stanley’s Richardson, who has followed metals for 23 years. Worldwide requirements will exceed production by 17,500 tons this year, according to the median estimate of 14 analysts in the Bloomberg survey between April 26 and April 30. Consumption is being led by China, where the economy expanded 11.9 percent in the first quarter from a year earlier, the fastest pace in almost three years, and urban fixed-asset investment jumped 26.4 percent. Manufacturing also grew at a faster pace in April as the Purchasing Managers’ Index rose to a seasonally adjusted 55.7 from 55.1 the month before. The country more than tripled production of nickel contained in pig iron to a record 44,000 tons in the first quarter, said Wang from Shanghai Metals Market April 29. Shanghai Metals is a unit of researcher CBI China Co. Pig Iron Output of nickel in China may jump 13 percent to 313,000 tons this year from 278,000 tons in 2009, according to Xu Aidong , an analyst at Beijing Antaike Information Development Co. The increase may cut imports of the metal and its alloys that totaled 250,216 tons in 2009, according to customs. “If your cost for nickel pig iron is about $15,000 a ton and you are sitting at $27,000, it’s a no-brainer” to switch, said RBS’s Moore. “There is going to be a lot of pig iron.” China’s ore and concentrate imports rose 72 percent in March to 1.64 million tons, the highest level since September, customs figures show. The last time the metal rallied, in 2006-2007, production of pig iron and climbing global stockpiles contributed to a slump after the price reached a record $51,800 a ton in May. Inventories reported by the London Metal Exchange totaled 145,314 tons last week, up from less than 5,000 in May 2007. One party held 50 percent to 79 percent of the warrants as of April 20, a total that dropped to 30 percent to 39 percent the next day, LME data show. “It’s going to be difficult for the market to maintain upward momentum” after the position was reduced, Wilson said. Outokumpu Oyj, a Finnish stainless steelmaker, said April 27 that inventories among supply chain distributors in Europe were estimated to be normal after a recovery in demand. That signals that “the burst of restocking” which boosted nickel demand in 2010 may not last beyond the middle of the year, according to Barclays Capital. To contact the reporters on this story: Anna Stablum in London at astablum@bloomberg.net Glenys Sim in Singapore at gsim4@bloomberg.net

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UAL Sends Airline Bond Yields to Two-Year Low Versus Junk: Credit Markets

May 3, 2010

By John Detrixhe May 3 (Bloomberg) — Airline bond yields are the lowest relative to the rest of the junk-bond market in more than two years as investors step up bets that a rebound in air traffic will make it easier for carriers to repay debt. The extra yield investors demand to own airline bonds instead of Treasuries fell to 6.04 percentage points as of April 30, according to Bank of America Merrill Lynch index data. That’s 0.43 percentage point wider than junk bonds on average, the tightest the spread has been since March 2008. Carriers are being helped as the return of business travelers and a rise in average ticket prices offsets a 64 percent jump in the average spot-market price for jet fuel from a year earlier. United Airlines parent UAL Corp., which agreed on May 2 to merge with Continental Airlines Inc., was put on review for a possible upgrade from Caa1 by Moody’s Investors Service and its B- rating was placed on CreditWatch with “positive” implications by Standard & Poor’s. “People view airline debt as less risky as the economy improves,” said Jeff Straebler , a fixed-income strategist at RBS Securities Inc. in Stamford, Connecticut. “With the economy slowly improving, and most people feel that it’s going to stay that way, really the big concern is simply oil.” Airline bonds have returned 9.35 percent this year through April 30, 2.19 percentage points more than high-yield bonds overall, Bank of America Merrill Lynch index data show. Spreads have narrowed 229 basis points, or 2.29 percentage points, compared with 78 basis points to 561 for all speculative-grade credit. Fed Survey, Hyundai Elsewhere in credit markets, a Federal Reserve survey found that most banks in the U.S. didn’t tighten lending standards in the first quarter, signaling a possible thaw in bank credit. Dave & Buster’s , the closely held operator of restaurant entertainment complexes, is seeking $200 million in loans to finance its leveraged buyout as credit for such acquisitions eases. Hyundai Motor Co. plans to issue $960.8 million of bonds backed by auto loans, according to a person familiar with the offering. The smallest proportion of banks in two years restricted standards on business lending, the Fed’s survey of senior loan officers released today showed. Also, more banks than in the previous quarterly survey expressed a greater willingness to make installment loans to consumers, the central bank said in Washington. “This is just one more feather in the cap of the recovery in the financial markets,” said Michael Darda , chief economist at MKM Partners LLC in Greenwich, Connecticut. “We’re going in the right direction.” Manufacturing Rises The shortage of credit, as banks tightened loan standards and many consumers and businesses paid off debt, has impeded the recovery. The central bank cited “tight credit” among the reasons for its April 28 decision to keep interest rates at zero to 0.25 percent for an “extended period.” Manufacturing in the U.S. expanded in April at the fastest pace since June 2004, indicating the world’s largest economy accelerated as it entered the second quarter. The Institute for Supply Management’s factory index rose to 60.4, exceeding the median forecast in a Bloomberg News survey of economists, from a March reading of 59.6. Dave & Buster’s plans to use a five-year, $50 million revolving credit line and a six-year, $150 million term loan B to finance its buyout, according to a person familiar with the transaction who declined to be identified because the terms are private. Hyundai Timing Oak Hill Capital Partners is buying the Dallas-based company from Wellspring Capital Management LLC for about $570 million, Dave & Buster’s said today in a statement. JPMorgan Chase & Co. and Jefferies Group Inc. committed to provide debt financing for the acquisition, according to the statement. Hyundai’s sale, through its finance arm, of bonds backed by auto loans may take place as soon as May 5, said the person familiar with the offering, who declined to be identified because terms aren’t public. Hyundai last issued similar debt in September, according to data compiled by Bloomberg. Plans for the offering emerged the same day the Commerce Department in Washington said Americans’ spending rose 0.6 percent in March, the most in five months. Incomes increased 0.3 percent, the first gain this year. Top-rated bonds backed by auto loans yield about 0.56 percentage point more than Treasuries, compared with 0.81 percentage point on Jan. 5, according to a Bank of America Merrill Lynch index. The debt was trading at a spread of about 3.16 percentage points a year ago, the data show. Credit Risk Falls About $21 billion in securities backed by auto loans have been sold in 2010, compared with $13.7 billion during the same period last year, Bloomberg data show. Credit-default swaps on the Markit CDX North America Investment Grade Index declined 1.6 basis point to 90.5 basis points as of 5:46 p.m. in New York, according to Markit Group Ltd. The index typically falls as investor confidence improves and rises as it deteriorates. The index dropped as manufacturing in the U.S. expanded in April at the fastest pace since June 2004, indicating the world’s largest economy accelerated as it entered the second quarter. The Institute for Supply Management’s factory index rose to 60.4, exceeding the median forecast in a Bloomberg News survey of economists, from a March reading of 59.6. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Emerging-Market Spreads In emerging markets, spreads widened 3 basis points to 261 basis points, according to JPMorgan Chase & Co.’s EMBI+ index. The difference in yields widened even as the European Central Bank joined the international rescue of Greece, saying it would indefinitely accept the country’s debt as collateral regardless of its country’s credit rating, underpinning gains in the bond market. Yields on Brazil’s interest-rate futures contracts jumped to the highest level in 14 months as faster-than-forecast inflation boosted speculation that benchmark rates will rise. The yield on the contract due January 2011, the most active in Sao Paulo trading, climbed 8 basis points, or 0.08 percentage point, to 11.2 percent at 4:03 p.m. New York time, its highest level since Feb. 25, 2009. UAL, based in Chicago, and Continental agreed to merge in a stock swap valued at more than $3 billion to create the world’s largest airline, reviving a deal that fell apart two years ago. Continental has its headquarters in Houston. Revenue Measure Rises “Consolidation is a positive,” Straebler said in a telephone interview. “If you have fewer large players, they are less likely to try and expand market share at the cost of profitability.” United’s yield, or average fare per mile, climbed 12 percent in the first quarter in the company’s main jet business. Revenue for each seat flown per mile, a measure of demand and ticket prices, jumped 19 percent while costs on the same basis rose 8.3 percent. Airlines issued $2.66 billion of high-yield notes last year, compared with no sales in 2008 and more than four times the amount of offerings in 2007, Bloomberg data show. United, the only airline to offer dollar-denominated junk bonds in 2010, sold $700 million of notes on Jan. 11, Bloomberg data show. The carrier’s $500 million of 9.875 percent senior secured debt due in August 2013 has risen about 6.7 cents from issue to 106 cents on the dollar, according to RW Pressprich & Co. United’s 12 percent secured notes have jumped 12.7 cents to 108 cents on the dollar. Access to Capital “Airlines look to be in good financial shape for 2010,” analysts at independent debt research firm CreditSights Inc. wrote in an April 20 report. Carriers’ “access to capital markets should allow financing of 2010 aircraft” capital expenditures and for refinancing of secured debt maturities, they wrote. Air carrier “credit quality has improved, but not to the same degree as spreads have tightened,” said Jonathan Root , an analyst at Moody’s in New York. Spreads are narrower than the underlying fundamental credit because of risks stemming from “fuel, labor, future capital investment requirements,” he said. Of the $3.36 billion of airline debt issued since the start of 2009, 91.1 percent has been secured by collateral, Bloomberg data show. “The investors have comfort with the higher risk because they have the airplanes as security,” Root said. To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Milken Faults Companies Failing to Reduce Excess Debt as Markets Recover

April 28, 2010

By Gabrielle Coppola April 29 (Bloomberg) — Companies failing to exploit the recovery in bond and equity markets to pay down debt are making a mistake, according to Michael Milken , the junk-bond billionaire turned philanthropist. Near-zero interest rates in the U.S. and Europe have fueled demand for high-risk securities, providing companies with an opportunity to cut debt incurred during the excesses of the credit boom, Milken told an audience at the Milken Global Institute conference yesterday in Beverly Hills, California. “It’s the individual’s fault, the individual leadership of that organization, if they are not taking advantage of today’s markets to sell equity and debt, de-leverage and push out maturities,” he said during a panel moderated by Matt Winkler , editor-in-chief of Bloomberg News. Companies sold $98.9 billion of high-yield bonds in the U.S. this year, on pace to beat the record $162.7 billion issued in 2009 after government measures unlocked credit markets frozen by Lehman Brothers Holdings Inc.’s collapse. The extra yield investors demand to own junk bonds instead of Treasuries fell to 5.51 percentage points yesterday from a peak of 21.82 percentage points in December 2008, according to Bank of America Merrill Lynch’s U.S. High-Yield Master II index. The average junk bond traded at 99.5 cents on the dollar from a low of 54.9 cents on Dec. 15, 2008, Merrill data show. Risks ‘Exaggerated’ “Defaults were exaggerated, the risks were exaggerated,” Milken said of the recovery in high-yield bonds. “Those risks existed in mortgage-backed securities, but they didn’t exist in industrial companies, and that’s what the market is saying.” The debt has returned 4.8 percent this year, following a record 58 percent return in 2009, Merrill data show. High-yield, or junk, bonds are ranked lower than Baa3 by Moody’s Investors Service and below BBB- by Standard & Poor’s. Milken, 63, pioneered the junk-bond market in the 1970s as the high-yield bond chief at Drexel Burnham Lambert Inc. He was indicted on 98 counts of racketeering and securities fraud in 1989, ultimately serving about two years after a plea bargain and sentence reduction. For the past decade he has focused on philanthropy and running the research institute he founded, which seeks ways to generate capital for people around the world. To contact the reporter on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net

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Junk Bonds Poised for Par as Profit Growth Spurs Upgrades: Credit Markets

April 27, 2010

By John Detrixhe April 27 (Bloomberg) — Junk bonds are trading within a half cent of face value for the first time since June 2007 in a sign that investors are convinced the economic recovery and profit growth will keep the neediest borrowers from defaulting. High-yield bonds rose to 99.67 cents on the dollar, up from a low of 54.78 cents in December 2008, according to Bank of America Merrill Lynch index data. The debt last reached par on June 11, 2007, just before credit markets began to seize up as losses on subprime mortgages spread. Even after returning 86 percent since the market bottomed in 2008, JPMorgan Chase & Co. and Morgan Stanley Investment Management are recommending that investors buy the debt. Rising earnings are making it easier for companies to meet payments, leading Moody’s Investors Service to lift the ratings on 142 junk bonds and cut 105, data compiled by Bloomberg show. Last year, it boosted 229 and lowered 902. “New issue prices and structures now are favoring the issuer,” Mark Shenkman , who became the first high-yield bond portfolio manager at Fidelity Investments in 1977, told investors this week at the Milken Institute Global Conference in Beverly Hills, California. “It was a buyers’ market for most of last year. Now clearly it is a sellers’ market,” said Shenkman, president of Shenkman Capital Management Inc. in New York. Issuance Soars Companies have issued $96 billion of junks bonds this year, or 59 percent of the record $162.7 billion sold in all of last year, Bloomberg data show. The ability to sell bonds is helping companies rated below Baa3 by Moody’s and less than BBB- by Standard & Poor’s to refinance debt and extend maturities. Elsewhere in credit markets, the cost to protect European sovereign debt from default surged after S&P cut its ratings on Greece to junk status and downgraded Portugal. American Express Co. joined Toyota Motor Corp. in marketing asset-backed bonds, the subordinated debt of Synovus Financial Corp. soared and developing-nation bonds tumbled. Credit-default swaps tied to Greek government bonds climbed 114 basis points to 824.5, while those on Portugal rose 67.4 to 383, according to CMA DataVision. S&P reduced Greece’s rating three levels to BB+, and slashed Portugal to A- from A+. S&P has a “negative” outlook on both nations, meaning more downgrades may come. ‘Contagion Risk’ “The biggest risk now is that the market speculates against every single indebted peripheral country, and that could lead to a sovereign debt crisis,” said Axel Botte , a strategist at AXA Investment Managers in Paris. “The contagion risk is real. It’s much easier to bail out a bank than to bail out a country.” In the U.S., credit-default swaps on the Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 7.5 basis points to a nine-week high of 98.4 basis points, according to Markit Group Ltd. The index typically rises as investor confidence deteriorates and falls as it improves. Swaps on Goldman Sachs Group Inc. climbed for a fifth day as a U.S. Senate panel questioned bank executives and employees about the New York-based firm’s role in the financial crisis. The contracts jumped 6 basis points to 173 basis points, CMA DataVision prices show. A basis point equals $1,000 annually on a contract protecting $10 million of debt. Toyota, American Express Toyota boosted its planned sales of bonds backed by auto loans to $1.25 billion from $775 million, according to a person familiar with the offering who declined to be identified because terms aren’t set. American Express is marketing $804.5 million of securities backed by credit-card payments, according to people familiar with the offerings. Both offerings may be priced tomorrow, the people said. Borrowers are selling asset-backed debt as demand holds up following the end last month of the Federal Reserve’s Term Asset Backed Securities Loan Facility. Ford Motor Co., through its finance arm, sold $1.09 billion of bonds backed by auto loans last week. Daimler AG, Bayerische Motoren Werke AG and Deere & Co. sold similar debt this month, Bloomberg data show. Top-rated securities backed by credit cards are yielding about 0.53 percentage point more than Treasuries, compared with a spread of 3.50 percentage points a year ago, based on a Bank of America Merrill Lynch index. Synovus Bonds Synovus Financial’s bonds were among the most active in the U.S. corporate high-yield bond market today. The company’s 5.125 percent notes due in 2017 soared 8.5 cents on the dollar to 90.5 cents after Synovus said it would repay the securities with stock, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. NBC Universal Inc., the media company in which Comcast Corp. has agreed to acquire a majority stake from General Electric Co., sold $4 billion of notes, Bloomberg data show. Proceeds will be used to help pay down a portion of NBC Universal’s $6.1 billion bridge loan to finance the Comcast deal, GE spokeswoman Anne Eisele said yesterday in an e-mail. Concern that Europe’s worsening government finances may spread led investors to push relative yields on emerging-market bonds wider by 0.22 percentage point to 2.63 percentage points, the widest in more than a month, according to the JPMorgan Emerging Market Bond Index. In Brazil, futures show policy makers are poised to raise borrowing costs at the fastest pace since President Luiz Inacio Lula da Silva took office in 2003 after central bank chief Henrique Meirelles pledged “vigorous action” on inflation.     The biggest two-day surge in six months on yields of the overnight interest rate futures contract due in July reflects speculation Meirelles will raise the benchmark Selic rate 2.25 percentage points to 11 percent by the June policy meeting, according to data compiled by Bloomberg. Junk Bond Spreads Yield spreads on junk bonds shrank to 5.42 percentage points on April 26, down from the record 13.2 percentage points in December 2008 and the narrowest since June 17, 2008, Bank of America Merrill Lynch index data show. Spreads widened today to 5.55 percentage points. Further evidence of the economic recovery came today, as confidence among U.S. consumers increased in April to the highest level since September 2008. The Conference Board’s index rose more than forecast, to 57.9 from 52.3 in March, according to the New York-based private research group. Of the 193 companies in the S&P 500 Index that have reported first-quarter earnings, 85 percent have exceeded analysts’ per-share estimates, Bloomberg data show. With profits rising, the number of distressed companies, or those with yield spreads of more than 10 percentage points, relative to all high-yield U.S. credit fell to 6.7 percent as of April 15, S&P said in a statement. That’s down from 9.7 percent the previous month. ‘Sharp Retreat’ Junk bond prices approaching par “reflects the more favorable fundamental outlook, including lower default expectations, while for borrowers it implies more attractive rates,” said Eric Takaha , director of corporate and high-yield for the Franklin Templeton Fixed Income Group, which manages more than $230 billion. In the first quarter, 1.3 percent of companies with speculative-grade liquidity were downgraded, a “sharp retreat” from the 13.6 percent a year earlier, Moody’s said in a report. The firm predicts the U.S. speculative-grade default rate will fall to 3.1 percent by the end of the year, a from the trailing 12-month rate of 9.9 in the first quarter and 13 percent in December. ‘Tilted’ JPMorgan Chase & Co. analysts led by Peter Acciavatti , the top-ranked high-yield strategist in Institutional Investor magazine’s annual survey for the past seven years, said in an April 23 report to the bank’s clients that investors should remain “overweight” junk bonds. In their monthly report to clients, Morgan Stanley Investment Management said its portfolios are “tilted” toward investment-grade and high-yield debt. The firm pointed out that the average spread for junk bonds as measured by the Citi High Yield Market Index is 5.79 percentage points, compared with the average of 5.63 percentage points over the past 20 years. “Companies are starting to see the pickup in the economy translate into better earnings prospects,” said John Puchalla , an analyst at Moody’s. “We’ve seen likely the worst for a number of industries and if the cycle starts to pick up, then that’s translating into better cash flow projections.” To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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Bond Returns Accelerate as Profits Outweigh Sovereign Risk: Credit Markets

April 25, 2010

By Bryan Keogh and Kate Haywood April 26 (Bloomberg) — Returns on corporate bonds are accelerating to the most in three months as optimism for profit growth outweighs the risk of contagion from worsening government finances. The debt has returned 0.66 percent this month, the biggest gain since January, led by insurers and real estate companies, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. That compares with the 0.01 percent return for government bonds. Of the 173 companies in the Standard & Poor’s 500 Index that reported first-quarter earnings, 80 percent exceeded analysts’ estimates, data compiled by Bloomberg show, bolstering confidence that borrowers will have an easier time meeting debt payments. Within the past week the International Monetary Fund and World Bank boosted their estimates of global economic growth even as the European Union races to fix Greece’s budget crisis before the nation defaults. “The economy is picking up and everyone is focusing on corporate debt,” said Andrew Wilmont , a London-based money manager with Axa Investment Managers U.K. Ltd. who helps oversee $5 billion of speculative-grade debt. “Markets don’t like uncertainty and investors need to see a signed deal with Greece and the EU and IMF and the money in the bank for sovereigns to look like a better bet.” Yield Spreads The extra yield investors demand to own company debt instead of Treasuries was unchanged last week at 143 basis points, or 1.43 percentage points, about the narrowest spread since November 2007 and down from 176 basis points at the end of 2009, Bank of America Merrill Lynch index data show. Based on the 8,495 bonds worldwide in the index, yields rose to an average of 3.949 percent from 3.904 percent on April 16. Elsewhere in credit markets, sales of corporate bonds fell 28 percent last week globally, JPMorgan Chase & Co. strategists say investors should “underweight” investment-grade corporate while staying “overweight” junk bonds, and prices of high- yield, or leveraged, loans fell for the first time since the week ended Feb. 15. Issuance fell to $43.5 billion from $60.4 billion in the period ended April 16, Bloomberg data show. Reynolds Group Holdings Ltd., the maker of Reynolds Wrap aluminum foil, may sell $1 billion of eight-year notes as soon as this week to fund acquisitions, said a person familiar with the transaction who declined to be identified because terms aren’t set. Default Swaps Reynolds said in an April 16 statement that it planned to acquire the Evergreen Packaging group of companies and a New Zealand paper mill from Carter Holt Harvey Ltd. The Auckland, New Zealand-based company said it planned to borrow $1.75 billion to pay for the acquisitions. While spreads for corporate bonds held steady, the cost to protect against defaults on U.S. corporate bonds rose to the highest in a month, trading credit derivatives show. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 1.7 basis points for the week to 88.9 basis points, according to CMA DataVision. The index, which reached 89.6 on March 22, rises as investor confidence deteriorates and falls as it improves. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt. JPMorgan Warning For investment-grade bonds “the arguments for wider spreads have actually increased over the past few days,” JPMorgan strategists including Eric Beinstein in New York wrote in a research report dated April 23. The firm cited threats including potential restrictions in the financial legislation reform being debated among U.S. lawmakers, saying it may lead to banks having their credit ratings lowered. JPMorgan said junk bonds are a better bet, recommending investors hold a greater percentage of the securities than is contained in benchmark indexes. Bonds in the U.S. rated below investment grade have returned 1.98 percent this month, and 6.89 percent for the year, according to Bank of America Merrill Lynch indexes. Spreads narrowed to 544 basis points on April 23 from 557 a week earlier and the high this year of 703 on Feb. 12. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P. Leveraged Loans In the leveraged loan market, nine transactions totaling $8.6 billion closed last week, bringing the year-to-date tally to $35.7 billion, according to JPMorgan. That compares with $38.2 billion in all of 2009. Prices of the loans fell an average of 0.29 cent last week to 92.62 cents on the dollar, after rising to 87.68 cents at the end of last year, according to the S&P/LSTA US Leveraged Loan 100 Index . The market for private-label mortgage bonds may be opening after Redwood Trust Inc. and Citigroup Inc. sold $222.4 million of securities without government guarantees in the first offering in more than two years. The AAA rated mortgage securities pay an initial coupon of 3.75 percent, according to an April 23 statement from Mill Valley, California-based Redwood, the jumbo-mortgage specialist that issued the bonds through an affiliate. The deal ends a drought in the $1.5 trillion non-agency mortgage-bond market, in which more than $200 billion of jumbo-loan securities were issued in each year from 2003 to 2006. Emerging Markets In emerging markets, spreads ended last week at 240 basis points, little changed from April 16 and down from the high this year of 323 on Feb. 8, based on JPMorgan indexes. Debt traders are growing more concerned about inflation in Brazil. Yields on Brazil’s interest-rate futures contracts rose for the first time in three days on April 23 after inflation exceeded economists’ forecasts before a central bank meeting this week. The yield on the contract due January 2011 jumped 3 basis points to 10.72 percent. The yield is up 32 basis points this month. Last week the IMF raised its forecast for global growth, predicting the world economy will expand 4.2 percent in 2010, the fastest pace in three years. The IMF had projected 3.9 percent growth in January. On April 24 the World Bank forecast global economic growth of 3.1 percent this year, more than the 2.7 percent it forecast in January, while cautioning that not all risks to the recovery have subsided. ‘Conflicting Forces’ “This earnings season is going pretty well and that’s combating the strong forces” of Greece, an investigation into Goldman Sachs Group Inc.’s marketing of debt securities and proposed banking regulations, said James Gledhill , a money manager who helps oversee 21 billion pounds ($32 billion) of fixed-income assets at Henderson Global Investors Ltd. in London. “There are conflicting forces pulling investors in different directions, but there is no real sense of a pressing need to sell.” Corporate bond returns are accelerating following gains of 0.62 percent last month and 0.37 percent in February, according to Bank of America Merrill Lynch index data. The index returned 1.83 percent in January. Bonds sold by insurers have returned 1.24 percent in April, while real estate debt gained 1.22 percent, according to the index. London-based Barclays Plc is the best-performer in the index, with its bonds gaining 1.55 percent this month. “The corporate bond market, whilst not immune from the volatility in the sovereign space, is showing an impressive level of resilience,” said Wayne Hiley , head of European corporate bond syndicate at Barclays Capital in London. To contact the reporters on this story: Bryan Keogh in London at bkeogh4@bloomberg.net ; Kate Haywood in London at khaywood@bloomberg.net

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