The bond markets continued their resilience to fears of an early Y2K shutdown this week as many borrowers sought to take advantage of a light issuance calendar. After last week's euro wobble, the major currencies caused few problems for the underlying government bond markets. US Treasuries rallied last Friday on supportive economic data while the Bund market followed the euro upwards on evidence that German growth may be picking up. Against such a benign background, Freddie Mac and Procter & Gamble felt confident enough to launch global dollar transactions and elsewhere volumes were boosted by taps of outstanding deals. Procter & Gamble surprised the market with a $1bn five year bond and, although tightly priced at 60bp over Treasuries, the paper was snatched up by domestic and international investors - the latter accounting for 30% to 35% of distribution. The deal tightened by a basis point in intermediate aftermarket trading. Freddie Mac reopened its September 2009 reference note by $3bn, taking the total issue size to $9bn. The deal also generated a strong international bid, some 25% of the issue was sold outside the US. Borrowers that can identify pockets of demand are finding themselves able to benefit from attractive funding levels as, alongside the thin primary market supply, secondary issues have been bid up. Such spread tightening is seen as evidence of increasing investor confidence that should lead to a buoyant market from January onwards. Fiat took advantage of the buoyant sentiment to launch the only significant new euro issue of the week, a Eu500m six year deal launched at 75bp over the April 2006 Bund. The automotive sector has recently been viewed as a safe haven by European investors seeking respite from the event risk that is now priced into the telecoms sector and, despite rapid execution, the deal was well received. DaimlerChrysler added Eu100m to its November 2002 deal and regional retail favourites such as D'Ieteren and Parmalat also reopened short dated issues. An Eu200m reopening of Sara Lee's July 2004 deal offered further evidence of the flight from telecoms. At 50bp over the July 2004 BTAN, the deal was increased at the same spread as at launch in July, while Ericsson's five year, launched in May, had widened 8bp over the intervening period. Heinz will round off new issuance in this year's euro corporate market launching a Eu300m five year today (Friday) via Warburg. Pricing of 48bp to 50bp over BTANs is expected. The deal will settle in January and is expected to attract reinvestment from the heavy redemptions due at the beginning of the month. In sterling, BG Transco successfully concluded its three tranche corporate restructuring package, with joint leads ABN Amro, Cazenove and HSBC pricing the deal a day ahead of schedule. Each tranche totalled £503.1m and comprised an index linked tranche maturing in 2022, a fixed rate bond maturing in 2024 and a 10 year FRN. Dutch insurer Aegon made its first visit to the sterling sector with a £250m 32 year transaction lead managed by Barclays and Warburg. The proceeds are to finance the insurer's recent acquisition of GRE's pension and life business. Investor response to the 175bp spread over Gilts was extremely positive and the deal closed Thursday at plus 170bp. Demand for long dated paper is not diminishing since £500m of taps in 2015, 2021 and 2028 maturities were launched for triple-A borrowers GECC, KfW, Nederlandse Waterschapsbank and RFF. DtA meanwhile tapped its 2008 bond for £50m and Halifax added £50m to each of its 2002 and 2008 transactions. The Woolwich increased its £250m three year floater by £150m. Japanese demand for yen product remains high, encouraging further Euroyen and Samurai issuance. In Euroyen, Primus Japan issued two tranches of ¥10bn three year bonds and ¥20bn of five year bonds targeted for placement with domestic accounts. Both deals are led by Daiwa, Merrill Lynch and TMI. In the Samurai sector, SBAB raised ¥80bn through a March 20, 2002 bond paying a coupon of 0.43% and Volvo will today launch a ¥60bn three year issue maturing on December 17, 2002. The deal is expected to yield yen Libor plus 5bp. Nomura is lead manager for both transactions.
December 10, 1999
