basis-points

Dubai Bond Risk Plunges by Most Since February After Abu Dhabi Pledges Aid

December 14, 2009

By Sarah McDonald and Abigail Moses Dec. 14 (Bloomberg) — The cost of protecting investors against Dubai defaulting on its debt tumbled the most since February after Abu Dhabi pledged $10 billion to help the emirate meet its obligations. Five-year credit-default swaps on Dubai’s debt fell 135.5 basis points to 405, according to CMA DataVision prices at 10:40 a.m. in London. The Markit iTraxx SovX Western Europe index of swaps on 15 governments dropped 8 basis points to 58.75, according to JPMorgan Chase & Co. Funds from Abu Dhabi, the capital of the United Arab Emirates and owner of the world’s biggest sovereign wealth fund, will help Dubai World unit Nakheel PJSC pay investors the $4.1 billion it owes on Islamic bonds maturing today. State-owned Dubai World roiled markets worldwide when it said Dec. 1 it was in talks with creditors to restructure $26 billion of debt. “A rally on Abu Dhabi’s support is clearly helping Asian and European credit this morning,” Puneet Sharma , head of credit strategy at Barclays Capital in London, wrote in a note to investors. Credit-default swaps on DP World Ltd. , the Middle East’s biggest port operator and a unit of Dubai World, fell 132 basis points to 439, according to CMA. Abu Dhabi slipped 8.5 basis points to 152, while Qatar dropped 9 to 99.5. The decline in default swaps tied to Dubai government debt was the biggest since Feb. 23, when the U.A.E’s central bank bought $10 billion of the Gulf state’s bonds. ‘Very Good News’ Abu Dhabi’s support for its neighbor “will no doubt be taken as very good news by the market,” Gary Jenkins , head of credit research at Evolution Securities Ltd. in London, wrote in a note. Credit-default swaps on European companies also fell on news of the Dubai bailout, with contracts on the Markit iTraxx Crossover Index of 50 mostly high-yield European companies slipping 10.5 basis points to an 18-month low of 473, according to JPMorgan. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 1.5 basis points to 79.25. The Markit iTraxx Financial Index of 25 banks and insurers decreased 2 to 77.5 and the subordinated debt index dropped 3 to 143, JPMorgan prices show. Default swaps on Greek government debt rose 8 basis points to 207.5, CMA prices show. The contracts fell at the end of last week after soaring to a nine-month high on concern the nation would have its credit rating cut because of rising debt. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a country or company fail to adhere to its debt agreements. A basis point on a contract protecting 10 million euros ($14.7 million) of debt from default for five years is equivalent to 1,000 euros a year. To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net Shelley Smith in Hong Kong at ssmith118@bloomberg.net

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Temasek Holdings Bond Yield Spread Narrows After First Debt Sale Since ’05

October 20, 2009

By Shelley Smith and Katrina Nicholas Oct. 20 (Bloomberg) — The yield spread on Temasek Holdings Pte’s first new bonds for four years narrowed after the $1.5 billion sale was buoyed by investor demand for assets perceived to be lower risk. The Singapore state-owned investment company sold 10-year, 4.3 percent notes with help from Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley that were priced to yield 95 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. The spread narrowed to 91 basis points as of 3:30 p.m. in Singapore, Deutsche Bank prices show. “It’s a triple-A credit and so anyone looking for a less risky asset would be interested in it,” Prashant Pandey , a credit trader for BNP Paribas SA, said in phone interview from Hong Kong. “In terms of upside, I don’t see very much because if you compare it to Singapore Technologies Engineering and PSA, which again are triple-A papers from Singapore, they are higher over Treasuries.” Temasek, which had assets of S$172 billion ($124 billion) as of July 31, has top investment-grade ratings from Moody’s Investors Service and Standard & Poor’s. Temasek-backed ports operator PSA International Pte. and Singapore Technologies Engineering Ltd. were the only other triple-A rated Asian companies to sell dollar bonds this year as debt markets reopened in the wake of Lehman Brothers Holdings Inc.’s collapse, Bloomberg data show. Dollar Bonds Singapore Technologies, Asia’s biggest aircraft maintenance company, sold $500 million of 10-year notes in July priced to yield 150 basis points more than Treasuries before PSA sold $500 million of bonds due 2019 last month priced at a 140 basis point spread, the data show. The yield premium on Singapore Technologies’ notes narrowed to 114 basis points today while PSA’s were quoted at 113 basis points, according to Royal Bank of Scotland Group Plc. A basis point is 0.01 percentage point. Temasek got $4 billion of orders for its bonds after the securities were marketed to investors at a spread of about 100 basis points, according to a person familiar with the transaction, who declined to be identified because they’re not authorized to discuss it. Some 62 percent of allocated offers came from U.S. investors, the person said. Relative Value “We were going to participate but they tightened in too far,” said Tony Adams , who helps manage A$60 billion ($56 billion) as co-head of global fixed-interest and credit at Colonial First State in Sydney. “At the initial price talk the risk/return looked attractive. At 95 we decided it probably wasn’t paying us enough compared to alternatives.” Microsoft Corp. of Redmond, Washington, which like Temasek has top credit ratings from Moody’s and S&P, has 4.2 percent notes due 2019 that were last quoted at 63 basis points over Treasuries, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Johnson & Johnson’s $900 million in 5.15 percent notes due 2018 last traded at a 51 basis point spread, Trace data show. J&J, based in New Brunswick, New Jersey, is the world’s largest healthcare products company. “Asian credit markets are more illiquid than the U.S. and there’s always been a premium borrowers pay for this,” Brayan Lai , a credit analyst for Calyon in Hong Kong, said in a phone interview today. “Microsoft and Johnson & Johnson are stand- alone corporates in the true sense of the word while Temasek, even though it is marketed like a corporate, is really a quasi- sovereign. If I were to compare Temasek to other global triple-A credits I might pick some of the supranationals, such as the European Investment Bank.” Supranationals Ten-year dollar bonds sold in Feb. 2008 by the European Investment Bank are trading at a spread of 97.8 basis points over Treasuries while 10-year dollar notes sold by the Asian Development Bank in Sept. 2008 are trading at a 78.3 basis point spread, Bloomberg data show. Temasek has slowed investments after losing money on financial companies. The company reported a 66 percent drop in profit to S$6.2 billion for the year to March 31 after selling stakes in Bank of America Corp. and Barclays Plc. It invested S$9 billion in the period, down from S$32 billion a year earlier, of which S$3 billion was in rights offerings by portfolio companies including London-based Standard Chartered Plc and Singapore’s DBS Group Holdings Ltd. Liquidity Buffer Chief Executive Officer Ho Ching said on Sept. 17 that Temasek has been building up liquidity in the past two years because of the risk of a slump, though it didn’t anticipate the “speed and ferocity.” Temasek scrapped plans to appoint Charles “Chip” Goodyear as a replacement for Ho as CEO in July. Temasek raised $1.75 billion from 4.5 percent, 10-year notes in September 2005 in its first-ever bond sale, according to data compiled by Bloomberg. The securities were last quoted at a yield spread of 92 basis points over Treasuries, according to RBS prices on Bloomberg. The new bonds were issued through the company’s Temasek Financial I Ltd. unit, Bloomberg data show. Temasek spokesman Jeffrey Fang declined to comment beyond a company statement. “We’re not expecting any major acquisitions but obviously that’s what this company is all about,” said S&P credit analyst Manuel Guerena . “These bonds will help extend Temasek’s debt maturity profile.” To contact the reporters on this story: Shelley Smith in Hong Kong at ssmith118@bloomberg.net ; Katrina Nicholas in Singapore at knicholas2@bloomberg.net

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Pound Declines Against Dollar, Euro on Speculation BOE to Cut Deposit Rate

September 24, 2009

By Morwenna Coniam Sept. 23 (Bloomberg) — The pound fell against the dollar for a second day on renewed speculation the Bank of England will cut the rate it pays financial institutions on deposits. The U.K. currency also snapped a two-day gain against the euro after the Daily Telegraph said the central bank called economists to a “crisis meeting” next week to discuss the British currency’s decline and its so-called quantitative-easing policy. The Bank of England made no mention of changes to the deposit rate in minutes of its Sept. 10 policy meeting released yesterday. “The press reports regarding the economists’ meeting next week could be indicating that issues such as the deposit-rate cut, which was mooted by King last week but wasn’t mentioned in the minutes yesterday, are back on the table,” said Jeremy Stretch , a senior currency strategist at Rabobank International in London. The market is “putting two and two together and seeing the plumbing or the pipes of the U.K. financial system are still a little gummed up.” The pound fell 0.6 percent against the dollar to $1.6244 as of 9:02 a.m. in London. The U.K currency also weakened 0.8 percent to 90.97 pence per euro. The yield on the two-year gilt dropped 6 basis points to 0.78 percent. The yield on the 10-year bond declined 5 basis points to 3.69 percent. The difference in yield between the two securities was 290 basis points, within two basis points of the widest since at least January 1992. To contact the reporters on this story: Morwenna Coniam in London at mconiam@bloomberg.net

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Corporate Bond Market `On Fire’ in Europe as Debt Sales Top $1.23 Trillion

September 8, 2009

By Paul Armstrong and Esteban Duarte Sept. 8 (Bloomberg) — Corporate bond sales surged in Europe, driving this year’s record issuance above $1.23 trillion, as borrowers from Italian automaker Fiat SpA to Dutch phone provider Royal KPN NV tapped credit investors. Issuance is now 11 percent ahead of the total for all of 2008 and demand for risk assets has driven the extra yield buyers demand to hold investment-grade corporate bonds down to 2.02 percentage points, from as high as 4.63 percentage points in March, Merrill Lynch & Co.’s EMU Corporate Index shows. “The market is back on fire after its usual summer lull,” said Juan Esteban Valencia , a credit analyst at Societe Generale SA in London. “Appetite for credit remains unabated.” Turin-based Fiat is selling 1.25 billion euros ($1.8 billion) of five-year bonds at a yield of 7.75 percent, according to SocGen, one of the managers of the issue. KPN in The Hague is issuing 850 million pounds of 20-year bonds priced to yield 175 basis points more than similar-maturity U.K. government bonds, a banker involved in the deal said. Bayerische Motoren Werke AG , the world’s biggest maker of luxury cars, is offering 1.5 billion euros of bonds, according to a banker involved in the deal. The notes will be priced to yield 133 basis points over the benchmark mid-swaps rate. A basis point is 0.01 percentage point. Investor Demand “A number of non-financial deals are coming to market this week,” analysts at Barclays Capital wrote in a note to clients today. “We believe these will do well as investors continue to demand corporate credit.” Governments across Europe are turning to banks to underwrite bond sales to ensure demand as they borrow record amounts to pull their economies out of the deepest recession in decades. Italy is syndicating a 30-year deal, its longest benchmark note, that attracted orders of more than 4 billion euros, bankers involved in the transactions said. Italy’s bonds will be priced to yield between five basis points and eight basis points more than the country’s existing debt maturing in 2039. The market for covered bonds was also active with Deutsche Pfandbriefbank offering a 1.5 billion-euro issue of five-year notes priced to yield 50 basis points more than swaps, according to a banker involved in the transaction. To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net

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Bond Rally Sputters in Europe as Companies Offer Lower New Issue Premiums

August 14, 2009

By Caroline Hyde Aug. 14 (Bloomberg) — The corporate bond market’s six-week rally ground to a halt in Europe this week as investor demand was damped by companies cutting the yield premiums offered on new debt issues. Investment-grade bond yields relative to government debt were unchanged at 2.11 percentage points, according to Merrill Lynch & Co.’s EMU Corporate bond index. Spreads tightened by an average 12 basis points a week since June 26, Merrill data show. “Some deals coming to the market look a little too expensive,” said Volker Marnet-Islinger , head of corporate bonds at Deka Investment GmbH in Frankfurt, which overseas about 142 billion euros ($202 billion) of assets. “Investors such as ourselves are becoming very selective.” New bond sales totaled 6.6 billion euros this week, driving the year’s record issuance to 817 billion euros, according to data compiled by Bloomberg. Buyers had been lured by the best returns since at least 1998, with investment-grade notes in euros handing bondholders 10.5 percent year-to-date, according to Merrill data. London-based Barclays Plc sold 750 million pounds ($1.24 billion) of 12-year bonds priced to yield 140 basis points more than the benchmark mid-swap rate, Bloomberg data show. The 5.75 percent notes, sold through Barclays Bank Plc, traded 1 basis point narrower at 139 basis points, according to HSBC Holdings Plc prices on Bloomberg. A basis point is 0.01 percentage point. Investor Request The U.K.’s second-biggest bank was approached by investors to sell more longer-dated debt after it raised 2 billion euros of 10-year bonds last week, according to a person with knowledge of the deal. Svenska Handelsbanken AB , Sweden’s second-largest bank by market value, sold 2 billion euros of three-year bonds priced to yield 73 basis points over midswaps, Bloomberg data show. The Stockholm-based lender last sold fixed-rate senior bonds in March, issuing 1.25 billion euros of five-year notes at a spread of 210 basis points. “The book for Handelsbanken totaled 3.6 billion euros, which highlights the depth of demand in the market despite more aggressive pricing,” said Eric Cherpion , deputy head of syndicate at Societe Generale SA, one of the banks that managed the bond sale. Paris-based SocGen also raised 1.25 billion euros with a sale of five-year bonds priced at a spread of 88 basis points over midswaps, Bloomberg data show. The issue was two times subscribed, the bank said, and the notes tightened 12 basis points in the first two days of trading, HSBC prices show. ‘Right Price’ “Deals at the right price will still perform, but you have to select those new issues that have potential,” said Marnet- Islinger at Deka Investment. Berlin-Hannoversche Hypothekenbank AG , a German mortgage bank, sold 600 million euros of two-year bonds, according to Bloomberg data. The 2.625 percent notes were priced to yield 80 basis points more than the benchmark mid-swap rate. “We expect senior financial issuance to remain strong for the rest of the year as banks look to rebuild capital markets’ faith again and show that they can fund without government assistance,” credit strategists Barnaby Martin and Teo Lasarte at Bank of America Corp. in London wrote in a note to investors. Voith AG , a manufacturer of paper-making machines, added 300 million euros to its 5.375 percent bonds due 2017, priced to yield 320 basis points more than the mid-swap rate. The outstanding bonds originally issued in June 2007 were trading at a spread of 341 basis points over midswaps the day before the increase, according to Markit iBoxx prices on Bloomberg. “Credit has definitely under-performed equities this week as profit taking and some short positions have been established,” Jim Reid , head of credit strategy at Deutsche Bank AG in London, wrote in a note to investors. To contact the reporter on this story: Caroline Hyde in London chyde3@bloomberg.net .

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Libor-OIS Narrows to 25 Basis Points, the Level Greenspan Called `Normal’

August 13, 2009

By Lukanyo Mnyanda Aug. 13 (Bloomberg) — The Libor-OIS spread narrowed to a level former Federal Reserve Chairman Alan Greenspan said he regarded as “normal,” adding to evidence the freeze in credit markets is thawing. The spread, which gauges the reluctance among banks to lend, fell 1 basis point to 25 basis points today, the least since Jan. 24, 2008. The spread soared to 364 basis points on Oct. 10 last year after Lehman Brothers Holdings Inc.’s collapse in September. Greenspan said in a June 2008 interview he wouldn’t consider credit markets back to “normal” until the spread was at 25 basis points. “Undoubtedly, things have improved an awful lot,” said David Keeble , head of fixed-income strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. The level “is a big psychological barrier for many central banks and money-market participants.” Financial institutions are becoming less wary of lending after central banks around the world cut interest rates to near zero and offered unlimited funds to unlock credit. U.S. authorities pledged $12.8 trillion in an attempt to revive credit markets and combat a recession that has cost financial companies more than $1.6 trillion in writedowns and losses. The Libor-OIS spread measures the premium banks charge over what traders predict the Fed’s daily effective federal funds rate will average over the next three months. It averaged 11 basis points in the five years to August 2007, when credit markets began seizing up. Growth to Return U.S. gross domestic product will probably expand by 2.2 percent next year, after contracting by 2.6 percent in 2009, according to the median forecast of 79 economists surveyed by Bloomberg News. While the cost of borrowing between banks has fallen, there are few signs of a revival in lending, according to Commerzbank AG, Germany’s second-largest lender. “Things have definitely changed,” said Christoph Rieger , co-head of fixed-income strategy at Commerzbank in Frankfurt. “But spreads are low because banks are not willing to borrow and have no need to. The bottom line is that these levels are artificially low.” Other measures of stress show signs that the banking industry is normalizing as the global economy emerges from the deepest recession since World War II. The TED spread , the difference between what financial institutions and the U.S. Treasury pay to borrow for three months, dropped below 30 basis points Aug. 4 for the first time since March 2007. It was at 28 basis points today, after peaking at 464 basis points in October. Corporate Bond Sales Credit markets started freezing in August 2007, when losses from subprime mortgages left financial institutions with billions of dollars in securities and financial contracts they couldn’t value. Markets contracted further in September 2008, when Lehman filed for bankruptcy. U.S. companies sold $898 billion of bonds this year in the busiest period since at least 1999, when Bloomberg began collecting the data. Issuances in Europe climbed to a record $1.2 trillion, beating the previous record set for the whole of 2007, as the best returns since 1998 lured investors. Investment-grade securities in euros handed bondholders 10.3 percent this year, including reinvested interest, according to Merrill Lynch & Co. index data. To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

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