Though recent spread volatility in the high-grade bond market has chased away a number of potential issuers, sell-siders remain convinced that 2002 investment-grade issuance will come in close to the $447 billion seen in 2000. Such a total would be well short of last year's $684 billion, but far better than last month's numbers would seem to indicate. Projected over a full year, February issuance through last Wednesday morning would translate to a total of only $340 billion, says Vince Boberski, strategist at Dain Rauscher in Chicago.
But, Boberski sees some signs that portfolio managers' appetite for risk is increasing. He points to last Tuesday's 6.5% 10-year offering by Southwest Air, which came at 165 basis points over Treasuries, and had tightened to 157 over the curve the following morning. He also sees benchmark cyclical names like Ford Motor Co. improving in the secondary market. Ford's 7.25% notes of '11 (A3/BBB+) had tightened some six basis points from recent wides as of last Wednesday morning--to a bid of 234 basis points over Treasuries.
Issuance totals have also been buoyed by unexpected new deal flow from "super-nationals" such as the Inter-American Development Bank, and the European Investment Bank (both Aaa/AAA), says Jeff Kane, head of global high-grade syndicate at Banc of America Securities. Kane says BofA had projected that issuance would decrease by 25-30% from last year due to projected slower M&A activity, fewer commercial paper term-outs and a number of one-time industrial sector refinancings. "If anything, it's been better than expected," he says.