Sales of floating-rate debt are accelerating as Pacific Investment Management Co.’s Bill Gross says investors should buy the securities to protect themselves from the risk that interest rates rise by the end of the year.
Australia & New Zealand Banking Group Ltd., life insurer MetLife Inc. and Fairfield, Connecticut-based General Electric Co.’s finance unit led $5.25 billion in sales of floating-rate bonds this week, the most in 11 months, according to data compiled by Bloomberg. Last year, sales declined 52 percent from 2009.
“There’s interest in owning floating-rate exposure because at some point the continued improvement in the economy is threatening to push rates upward later in the year,” said Justin D’Ercole, the head of investment-grade syndicate for the Americas at Barclays Capital in New York. “If everyone is maxed out on fixed-rate paper, they’re going to suffer.”
Rising yields brought on by faster inflation will mean that “long-term bondholders lose their heads” and face losses, Gross, who manages the world’s largest bond fund, wrote in a commentary posted today on Newport Beach, California-based Pimco’s website.
Treasury Yields
The yield on the benchmark 10-year Treasury note has soared to 3.47 percent from 2.38 percent in October, the lowest since January 2009. It may climb to 3.53 percent by year-end, according to the average estimate in a Bloomberg survey of 66 economists.
Elsewhere in credit markets, issuers sold $9.7 billion of U.S. corporate bonds today, following $21.2 billion on Jan. 4, the most since Sept. 15, 2009, Bloomberg data show. Leveraged loan prices rose to the highest in almost two years and junk bonds spreads declined to the lowest since November 2007.
Melbourne-based ANZ led issuers in raising $3 billion in a three-part offering, including $1 billion of floating-rate debt. The bank initially offered $750 million of the securities. The three-year notes pay 74 basis points more than the three-month London interbank offered rate, a borrowing benchmark.
Toyota Bonds
Toyota Motor Credit Co., the U.S. finance unit of the world’s largest automaker, sold $1.6 billion of 5- and 10-year debt, locking in cheaper rates than in its last benchmark offering of the maturities, Bloomberg data show.
Toyota Motor Credit’s $900 million of 2.8 percent, 5-year notes pay a spread of 70 basis point spreads, and its $700 million of 4.25 percent, 10-year bonds yield 80 basis points above Treasuries, Bloomberg data show. In June, the Toyota Motor Corp. unit sold $1.25 billion of 3.2 percent, 5-year notes at a 120 basis-point spread and $750 million of 4.5 percent, 10-year notes at 130 basis points.
In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 1.7 to 101.6
Loans Rise
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 Standard & Poor’s/LSTA US Leveraged Loan 100 Index climbed for an eighth straight day, rising 0.29 cent to 93.5 cents on the dollar. The index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, is at the highest level since Jan. 18, 2008 and has risen from 92.91 cents at the end of December. Rising prices help companies improve the terms of their debt agreements.
CommScope Inc. set pricing on a $1 billion term loan it’s seeking to help fund its acquisition by Carlyle Group, according to a person familiar with the transaction.
The loan is covenant-lite, meaning it doesn’t have financial-maintenance requirements, the person said. The telecommunications-equipment provider will pay an interest rate 4 percentage points more than Libor, said the person, who declined to be identified because the terms are private. Libor will have a 1.5 percent floor, the person said.
The Hickory, North Carolina-based company may sell the debt at 99 cents on the dollar, said the person, reducing proceeds for the borrower and boosting the yield for investors.
Investors, meanwhile, are accepting the lowest relative yields on speculative-grade bonds in more than three years.
Spreads on junk debt shrank 16 basis points to 511 basis points, or 5.11 percentage points, Bank of America Merrill Lynch index data show. That’s the lowest since Nov. 14, 2007.
While high-yield, high-risk loans and bonds are rated below Baa3 by Moody’s Investors Service and less than BBB- by S&P, loans have a more senior claim on assets than bonds and are repaid first in bankruptcy. Leveraged loans also pay an interest rate tied to Libor, while bonds typically have fixed coupons.
Emerging Markets
In emerging markets, relative yields fell 10 basis points to 219 basis points, the third straight day of declines and the lowest level since Dec. 14, according to JPMorgan Chase & Co. index data.
Borrowers issued $87.8 billion of floating-rate notes in 2010, compared with $182 billion the previous year, including $91 billion issued under the Federal Deposit Insurance Corp.’s Term Liquidity Guarantee Program, Bloomberg data show. Companies issued $8.01 billion of floating-rate notes in December, the fourth-busiest month of 2010.
Investors deposited a record $10.4 billion into funds investing in floating-rate bonds and loans last year, including $2.1 billion in December as Treasury rates rose, according to EPFR Global, a Cambridge, Massachusetts-based firm that tracks the flows. U.S. funds accounted for $10.1 billion of the total.
“The inflows were driven by the anticipation of inflation and its deleterious impact on bonds,” said Brad Durham, managing director at EPFR. “Floating-rate fixed income is one of the only places of refuge in a rising-rate and rising- inflation environment.”
‘Best Value’
Floating-rate notes will have their “best value” next year as inflation and interest rates climb, said Mark Grant, a managing director at broker-dealer Southwest Securities Inc. in Fort Lauderdale, Florida.
“The yields you can get on floating-rate notes you can get presently aren’t attractive, but they’ll provide you protection as interest rates rise.” MetLife, based in New York, issued $500 million of floating-rate notes due in January 2014 on Jan. 4, Bloomberg data show. BNP Paribas SA and Barclays Plc also tapped the U.S. corporate bond market to sell the debt this week as issuance climbed to the highest since the period ended Jan. 29, 2010, when $6.53 billion was sold.
GE Capital sold $2.25 billion of floating-rate notes as part of its $6 billion offering yesterday, the largest in 11 months, Bloomberg data show.
Bonds from GE were the most actively traded U.S. corporate securities by dealers, with 411 trades of $1 million or more, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Fed Target Rate
Futures contracts on the Chicago Board of Trade on whether Fed policy makers will raise their target rate for overnight loans between banks by at least a quarter-percentage point by their November meeting have climbed from 30.8 percent a month ago. The Fed has held the target for its overnight lending rate at zero to 0.25 percent since December 2008.
In addition to holding down rates, Fed policy makers said Jan. 4 that improvements in the economy didn’t meet the threshold for scaling back plans to purchase $600 billion in Treasury securities through June.
“If the Fed gets it right, floating rate supply in the second half of the year should be two times what it was in the first half of the year,” Barclays’s D’Ercole said.
Pimco boosted its forecast for U.S. growth in 2011 after President Barack Obama reached a deal with Congress to extend tax cuts and unemployment benefits. Gross domestic product may grow at an annualized rate of 3 percent to 3.5 percent in the fourth quarter, compared with an earlier estimate of 2 percent to 2.5 percent, Pimco said.
To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net
댓글 없음:
댓글 쓰기