IMF warning cools record pace of debt offerings

Corporate bond sales worldwide have slowed from their record pace in the middle of the month as everyone from the Federal Reserve to the International Monetary Fund cuts forecasts for economic growth. General Electric, SABMiller and BMW led $287.8 billion (Dh1 trillion) of offerings this month, the slowest start to a year since 2008, Bloomberg data show. As recently as two weeks ago sales totaled $187.3 billion, the fastest pace for a January on record. Now, sales from the US to Europe to Asia have declined 14 per cent from the $335.4 billion raised in the same period a year earlier. Issuance is dwindling after the IMF lowered its estimate for global growth this year to 3.3 per cent on Tuesday, from a September forecast of 4 per cent, citing mounting evidence European debt turmoil will cause damage beyond the continent. Banks from the common currency zone have tapped record amounts of emergency central bank funding, as an alternative to their sales of bonds in the US, where total offerings have fallen 28 per cent from a year ago. "The big change is the lack of access to the market for the European banks, which have been non-existent so far," said Justin D'Ercole, head of investment-grade syndicate for the Americas at Barclays Capital in New York in a telephone interview. The extra yield investors demand to own investment-grade corporate bonds from the US to Europe to Asia shrank to 236 basis points, or 2.36 percentage points, according to Bank of America Merrill Lynch index data. While that's the narrowest in almost three months, it's still 76 basis points wider than a year ago. In Europe, bond sales have climbed 14 per cent this month to €65.4 billion (Dh315 billion) in both the region's common currency and British pounds, Bloomberg data show. Spreads on company debt there have contracted 51 basis points this year to 260 basis points, Bank of America Merrill Lynch's EMU Corporate Index shows. Functional market "There will probably be a bit of an attitude of ‘print while you can'," said Alison Murdoch, a credit strategist at Ria Capital in Edinburgh. "Companies can't assume that markets will remain functional." Elsewhere in credit markets, the cost of insuring against a European sovereign default fell to the lowest in almost two months on speculation talks to restructure Greece's debt are close to a conclusion. Mortgage bonds rallied for a second day on Thursday after Fed Chairman Ben S. Bernanke said the central bank is considering more asset purchases to boost growth. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments fell two basis points to 320.5 as of 11.36am in London, signaling an improvement in perceptions of credit quality. Greece its negotiating a voluntary debt exchange with bondholders to stave off a default as it faces €14.5 billion of bonds coming due in March. European Union Economic and Monetary Affairs Commissioner Olli Rehn said in Davos, Switzerland that he expects an agreement will be reached "if not today, then over the weekend". 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. Bonds of Bank of America were the most actively traded US corporate securities by dealers on Thursday, with 178 trades of $1 million or more, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Emerging markets In emerging markets, relative yields were unchanged at a seven-week low of 407 basis points, according to JPMorgan Chase & Co's EMBI Global index. Spreads have fallen from 490 on October 4. Company bond sales worldwide through yesterday are the least since $205.8 billion was issued during the same span in 2008, Bloomberg data show. U.S. offerings fell to $103.9 billion this year from $144.9 billion through January 26, 2011. General Electric, the world's largest maker of jet engines, has issued $7.17 billion of debt in currencies including the US dollar, British pound and Swiss franc, Bloomberg data show. SABMiller issued $7 billion of notes in the largest US offering in almost two years. Company bond sales remain brisk in Europe. Italian oil group Eni was the latest company to raise money today, while BMW led issuance this year with $5.22 billion of bonds. Rabobank Nederland issued $2.5 billion of five-year notes on January 11 while KfW, the German state-owned development lender has raised $8.75 billion in the only US offerings this year by European financial institutions. Foreign debt issued in the US market is known as Yankee bonds. Mortgage bonds advance Mortgage bonds rallied after Fed Chairman Ben S. Bernanke's signal he may consider more bond buys after the central bank extended its outlook for low rates. Yields on government-sponsored Fannie Mae's current-coupon 30-year fixed-rate mortgage securities, or those trading closest to face value, decreased four basis points to 78 basis points more than 10-year US government debt, the lowest in more than 10 months, Bloomberg data show. Yields fell by the most in three months to a record 2.72 per cent. The Standard & Poor's/LSTA US Leveraged Loan 100 index rose for an eighth day to the highest since August 3 yesterday, climbing 0.29 cent to 93.03 cents on the dollar. The measure, which tracks the 100 largest dollar-denominated first-lien leveraged loans, has climbed from 86.96 on Oct. 5, which was the lowest level since December 2009. Leveraged loans and high-yield bonds are rated below Baa3 by Moody's Investors Service and lower than BBB- by S&P.