The past five weeks have seen spreads widen, investors buying up highly-rated paper if they are buying at all, and volatility in equities. But despite the challenges, the market has proved to be relatively robust and volumes have not sunk as low as they could have. Private placement issuance in September dropped below the volumes for each of the previous four months. From May to August the monthly volume did not drop below $25 billion but in September it was down to $22.75 billion. Many dealers are surprised that the market did not suffer a lot more. Despite the market slowdown, triple-A issuance has boomed. The number of trades by triple-A borrowers went up from 259 in August to just 262 in September, according to MTNWare. But the volume almost doubled. About $41.74 billion was issued in triple-A debt in September, with Freddie Mac and two supranationals - World Bank and European Investment Bank - raising over $23 billion between them. The much-talked about flight to quality has done these issuers a lot of good. And Christopher Cox, head of Euro-MTN trading at Schroder Salomon Smith Barney, says: "The agencies have done good business lately. There are those accounts that want liquidity and others that want to take structured interest-rate views in dollar without combining this with credit risk: this has benefited the agencies." Lower credits have been hit hard. The triple-B sector had been seeing volumes as high as $13 billion in April this year. But September volumes were down to just $2.45 billion - the lowest monthly volume all year. Simon Hill, Euro-MTN trading at Credit Suisse First Boston, says: "In general, the lower the rating, the greater the widening in spreads. The credit market is much more sector specific than it used to be though: telecoms, autos and airlines have been especially hard hit." He adds: "Spreads for double-As and below have widened. Yet many issuers won't pay the new spreads - they are waiting for spreads to tighten. However I don't see spreads coming in this year."
October 19, 2001
