Fed surprise drives slew of new US high-grade bonds
* High-grade supply could top US$10 billion on Thursday
* Bank spreads scream tighter post Summers and Fed news
NEW YORK, Sept 19 (IFR) - Banks and other financial institutions led a charge of at least 10 issuers into the US investment-grade bond market on Thursday, after the Federal Reserve's surprise decision not to start winding down its bond-buying program just yet.
The Fed's announcement, which caught much of the market off guard, sent Treasury yields - and thus borrowing costs - falling sharply, encouraging issuers to try to get new deals done before an anticipated rates rise in the months ahead.
Citigroup, Union Bank and BB&T were among the first to announce benchmark-sized deals Thursday, quickly followed by Sweden's Svenska Handelsbanken, Brazil's development bank BNDES, Nissan Motor Acceptance Corp and Reinsurance Group of America.
In the corporate sector, engines and equipment maker Cummins Inc weighed in with an offer of US$1 billion of 10 and 30-year notes, while smaller offerings were announced by UDR, a real estate investment trust, and Trilliant Exploration.
The slew of deals comes as the 10-year Treasury yield opened up around 2.7% this morning, about 20bp tighter than last Friday, when global markets were bracing for a move by the Fed to start trimming its US$85 billion in monthly asset purchases.
Senior unsecured bank bond spreads have tightened by as much as 10bp this week, while subordinated debt by both US and Yankee banks have racheted in 20bp across the board.
The rally began on Monday after Lawrence Summers, a policy hawk thought to be opposed to extending the Fed's asset buying, withdrew from the race to succeed Ben Bernanke as Fed chairman.
It then accelerated after the Fed committed to its quantitative easing programme, providing additional impetus to what was already a red-hot market.
"We expect to see further declines in spreads, especially in subordinated and preferreds issued by banks, because these are the areas that were most beaten up in recent months by expectations that the 10-year (Treasury yield) was going above 3%," said one debt capital markets coverage banker specializing in the Financial Institutions Group (FIG) sector.
The self-imposed blackout season, which kicks in towards month-end for many institutions ahead of the release of quarterly earnings, has provided more impetus for banks to get deals done before the end of next week.
Even before the Fed's surprise decision, the US investment-grade bond market had been on a tear. Following Wednesday's close, the high-grade month-to-date issuance volume was just over US$97.6 billion - well past the US$87.8 billion in the same time period last year. Thursday's deals could end up accounting for roughly another US$10 billion in supply.
And investor interest in at least some of the new deals on offer has been strong. Brazil's BNDES attracted more than US$11 billion of orders for its new trade, which was subsequently increased in size to US$2.5 billion.
(Reporting by Danielle Robinson; Additional reporting by Joan Magee and Anthony Rodriguez; Editing by Marc Carnegie and Natalie Harrison)