Convertible securities are beating the U.S. corporate bond market by the most in more than 10 years as investors wager stocks may outperform company debt paying record-low yields.
Debentures that can be exchanged for shares returned 4.42 percentage points more than company bonds in September, the biggest gap since August 2000, according to Bank of America Merrill Lynch index data. El Paso, Texas-based Western Refining Inc.’s 5.75 percent convertible notes due in June 2014, the most traded of the securities yesterday, rose to the highest level since January.
Investors are seeking to profit from the rally in equities by buying convertible bonds, which are deemed safer than stocks should the economy slip back into recession. Junk bond prices are above par for the first time since 2007 and the Standard & Poor’s 500 Index trades at 15 times the past 12 months’ earnings, a 28 percent discount based on its 20-year average.
“Either bonds are a bubble or stocks are cheap,” said Edward Silverstein, a senior managing director who helps manage $2.7 billion of convertible bonds at MacKay Shields LLC in New York. “You basically have an investor that’s scared.”
Convertible bonds may also protect fixed-income investors from companies taking on debt to boost their share price through stock buybacks or mergers at the expense of credit quality, said Hans Mikkelsen, credit analyst at Bank of America Corp.
“If you just buy a corporate bond, you only get the negatives,” Mikkelsen said.
Low-Cost Financing
Companies from Microsoft Corp. to PepsiCo Inc. and Hewlett- Packard Co. are taking advantage of low-cost financing to purchase their stock, announcing buybacks of at least $258 billion this year, compared with $52 billion in the first three quarters of 2009, according to data compiled by Birinyi Associates Inc.
U.S. corporate bond yields fell to a record-low 4.618 percent yesterday, according to Bank of America Merrill Lynch index data.
Borrowers issued $1.9 billion of U.S. convertible bonds in September, 26.7 percent more than the prior month, Bloomberg data show. Sales this year of $22.4 billion compare with $35.3 billion in all of 2009 and $61.3 billion the year before.
Elsewhere in credit markets, the extra yield investors demand to own company bonds worldwide instead of similar maturity government debt was unchanged at 172 basis points, or 1.72 percentage point, down 8 basis points from Sept. 1, according to Bank of America Merrill Lynch’s Global Broad Market Corporate index. The spread has ranged from a low this year of 142 basis points in April to a high of 201 in June. Average yields were 3.45 percent.
BP Bond Sale
BP Plc raised 2 billion euros ($2.7 billion) in its first fixed-rate bond sale in the currency in almost two years. The sale followed a $3.5 billion offering on Sept. 28, its first bond issue since the Gulf of Mexico oil spill in April.
The London-based company is taking advantage of renewed investor demand for its securities after S&P confirmed an A grade ranking on Sept. 24.
CBS Corp., owner of the most-watched U.S. television network, sold $600 million of debentures to repay debt maturing in 2012 and 2051 and for general corporate purposes, according to a filing with the Securities and Exchange Commission.
CBS, based in New York, issued $300 million each of 10.5- year, 4.3 percent notes that yield 185 basis points more than similar-maturity Treasuries and 30-year, 5.9 percent bonds that pay a 220 basis-point spread, according to data compiled by Bloomberg.
Sanofi Loan
Sanofi-Aventis SA said banks agreed to provide as much as $15 billion of loans to fund its offer to buy Cambridge, Massachusetts-based Genzyme Corp. The unsecured financing includes a $10 billion 18-month term loan, which can be extended by six months, and a $5 billion 42-month term loan, the Paris- based company said yesterday in a statement.
France’s largest drugmaker started an $18.5 billion hostile takeover for Genzyme after the U.S. biotechnology company spurned the bid as too low and refused to negotiate.
The S&P/LSTA US Leveraged Loan 100 Index fell 0.23 cent to 90.22 cents on the dollar, its second daily decline following five straight increases. The index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, has ranged between 87.76 in January and 92.9 in April.
Bonds from Fairfield, Connecticut-based General Electric Co. were the most actively traded U.S. corporate securities by dealers yesterday, with 108 trades of $1 million or more, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Bondholder Protection
A benchmark measure of corporate credit risk in the U.S. rose from a two-week low as a drop in American factory orders triggered caution before the start of the earnings season.
The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, climbed 0.9 basis point to a mid-price of 105.1 basis points as of 7 p.m. in New York, according to Markit Group Ltd.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 2 basis points to 116 basis points as of 8:06 a.m. in Singapore, according to prices from Royal Bank of Scotland Group Plc.
The indexes typically rise as investor confidence deteriorates and fall as it improves. The 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.
Emerging Markets
In emerging markets, the extra yield investors demand to hold corporate bonds rather than government debt rose 4 basis points to 275 basis points, according to JPMorgan Chase & Co. index data.
Convertible bonds returned 5.52 percent in September and gained 7.78 percent in the first nine months of 2010, while company debt handed investors 1.1 percent last month and 11.4 percent through Sept. 30.
The S&P 500 returned 8.92 percent in September and gained 3.9 percent in the first three quarters of 2010.
Western Refining’s $215.5 million of convertible bonds rose 0.75 yesterday to 85.5 cents on the dollar, Trace data show. The securities traded as low as 71.5 cents in February.
Convertible bonds “still have downside protection if there’s a double dip situation,” Mikkelsen said. “The stock market has really lagged the recovery in the corporate bond market.”
Knight Capital
Knight Capital Group Inc. shut its convertible-bond trading desk in Greenwich, Connecticut, a person with direct knowledge of the situation, who declined to be identified because the company hasn’t officially released the information, said last week. Kara Fitzsimmons, a spokeswoman for the Jersey City, New Jersey-based company, declined to comment.
Offerings showed signs of a revival in September, said Roland Hotz, who manages the equivalent of more than $4.1 billion globally at Fisch Asset Management in Zurich.
“The new issue market was poor until the end of August. September was actually quite good,” Hotz said. “Using a convertible reduces the issuer’s interest burden and that’s attracted some high-yield companies. There hasn’t been much investment-grade issuance because they can already finance themselves at a low coupon.”
The Federal Reserve has driven down corporate borrowing costs by holding interest rates between zero and 0.25 percent since December 2008 amid the worst financial crisis since the Great Depression. Redmond, Washington-based Microsoft, one of four nonfinancial U.S. companies with top AAA credit ratings, sold $4.75 billion of bonds on Sept. 22, including 3-year, 0.875 percent notes, the lowest coupon on record for the maturity.
“The real trigger point is going to be rates,” said David Clott, portfolio manager in Westborough, Massachusetts at Aviva Investors’ Global Convertibles Fund, which has assets of about $1.95 billion. “If you see rates back up 100 basis or so, that will be the trigger for convertible bond market to open up and we’ll see more issuance.”
To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net
http://jodnet.blogspot.com
Debentures that can be exchanged for shares returned 4.42 percentage points more than company bonds in September, the biggest gap since August 2000, according to Bank of America Merrill Lynch index data. El Paso, Texas-based Western Refining Inc.’s 5.75 percent convertible notes due in June 2014, the most traded of the securities yesterday, rose to the highest level since January.
Investors are seeking to profit from the rally in equities by buying convertible bonds, which are deemed safer than stocks should the economy slip back into recession. Junk bond prices are above par for the first time since 2007 and the Standard & Poor’s 500 Index trades at 15 times the past 12 months’ earnings, a 28 percent discount based on its 20-year average.
“Either bonds are a bubble or stocks are cheap,” said Edward Silverstein, a senior managing director who helps manage $2.7 billion of convertible bonds at MacKay Shields LLC in New York. “You basically have an investor that’s scared.”
Convertible bonds may also protect fixed-income investors from companies taking on debt to boost their share price through stock buybacks or mergers at the expense of credit quality, said Hans Mikkelsen, credit analyst at Bank of America Corp.
“If you just buy a corporate bond, you only get the negatives,” Mikkelsen said.
Low-Cost Financing
Companies from Microsoft Corp. to PepsiCo Inc. and Hewlett- Packard Co. are taking advantage of low-cost financing to purchase their stock, announcing buybacks of at least $258 billion this year, compared with $52 billion in the first three quarters of 2009, according to data compiled by Birinyi Associates Inc.
U.S. corporate bond yields fell to a record-low 4.618 percent yesterday, according to Bank of America Merrill Lynch index data.
Borrowers issued $1.9 billion of U.S. convertible bonds in September, 26.7 percent more than the prior month, Bloomberg data show. Sales this year of $22.4 billion compare with $35.3 billion in all of 2009 and $61.3 billion the year before.
Elsewhere in credit markets, the extra yield investors demand to own company bonds worldwide instead of similar maturity government debt was unchanged at 172 basis points, or 1.72 percentage point, down 8 basis points from Sept. 1, according to Bank of America Merrill Lynch’s Global Broad Market Corporate index. The spread has ranged from a low this year of 142 basis points in April to a high of 201 in June. Average yields were 3.45 percent.
BP Bond Sale
BP Plc raised 2 billion euros ($2.7 billion) in its first fixed-rate bond sale in the currency in almost two years. The sale followed a $3.5 billion offering on Sept. 28, its first bond issue since the Gulf of Mexico oil spill in April.
The London-based company is taking advantage of renewed investor demand for its securities after S&P confirmed an A grade ranking on Sept. 24.
CBS Corp., owner of the most-watched U.S. television network, sold $600 million of debentures to repay debt maturing in 2012 and 2051 and for general corporate purposes, according to a filing with the Securities and Exchange Commission.
CBS, based in New York, issued $300 million each of 10.5- year, 4.3 percent notes that yield 185 basis points more than similar-maturity Treasuries and 30-year, 5.9 percent bonds that pay a 220 basis-point spread, according to data compiled by Bloomberg.
Sanofi Loan
Sanofi-Aventis SA said banks agreed to provide as much as $15 billion of loans to fund its offer to buy Cambridge, Massachusetts-based Genzyme Corp. The unsecured financing includes a $10 billion 18-month term loan, which can be extended by six months, and a $5 billion 42-month term loan, the Paris- based company said yesterday in a statement.
France’s largest drugmaker started an $18.5 billion hostile takeover for Genzyme after the U.S. biotechnology company spurned the bid as too low and refused to negotiate.
The S&P/LSTA US Leveraged Loan 100 Index fell 0.23 cent to 90.22 cents on the dollar, its second daily decline following five straight increases. The index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, has ranged between 87.76 in January and 92.9 in April.
Bonds from Fairfield, Connecticut-based General Electric Co. were the most actively traded U.S. corporate securities by dealers yesterday, with 108 trades of $1 million or more, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Bondholder Protection
A benchmark measure of corporate credit risk in the U.S. rose from a two-week low as a drop in American factory orders triggered caution before the start of the earnings season.
The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, climbed 0.9 basis point to a mid-price of 105.1 basis points as of 7 p.m. in New York, according to Markit Group Ltd.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 2 basis points to 116 basis points as of 8:06 a.m. in Singapore, according to prices from Royal Bank of Scotland Group Plc.
The indexes typically rise as investor confidence deteriorates and fall as it improves. The 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.
Emerging Markets
In emerging markets, the extra yield investors demand to hold corporate bonds rather than government debt rose 4 basis points to 275 basis points, according to JPMorgan Chase & Co. index data.
Convertible bonds returned 5.52 percent in September and gained 7.78 percent in the first nine months of 2010, while company debt handed investors 1.1 percent last month and 11.4 percent through Sept. 30.
The S&P 500 returned 8.92 percent in September and gained 3.9 percent in the first three quarters of 2010.
Western Refining’s $215.5 million of convertible bonds rose 0.75 yesterday to 85.5 cents on the dollar, Trace data show. The securities traded as low as 71.5 cents in February.
Convertible bonds “still have downside protection if there’s a double dip situation,” Mikkelsen said. “The stock market has really lagged the recovery in the corporate bond market.”
Knight Capital
Knight Capital Group Inc. shut its convertible-bond trading desk in Greenwich, Connecticut, a person with direct knowledge of the situation, who declined to be identified because the company hasn’t officially released the information, said last week. Kara Fitzsimmons, a spokeswoman for the Jersey City, New Jersey-based company, declined to comment.
Offerings showed signs of a revival in September, said Roland Hotz, who manages the equivalent of more than $4.1 billion globally at Fisch Asset Management in Zurich.
“The new issue market was poor until the end of August. September was actually quite good,” Hotz said. “Using a convertible reduces the issuer’s interest burden and that’s attracted some high-yield companies. There hasn’t been much investment-grade issuance because they can already finance themselves at a low coupon.”
The Federal Reserve has driven down corporate borrowing costs by holding interest rates between zero and 0.25 percent since December 2008 amid the worst financial crisis since the Great Depression. Redmond, Washington-based Microsoft, one of four nonfinancial U.S. companies with top AAA credit ratings, sold $4.75 billion of bonds on Sept. 22, including 3-year, 0.875 percent notes, the lowest coupon on record for the maturity.
“The real trigger point is going to be rates,” said David Clott, portfolio manager in Westborough, Massachusetts at Aviva Investors’ Global Convertibles Fund, which has assets of about $1.95 billion. “If you see rates back up 100 basis or so, that will be the trigger for convertible bond market to open up and we’ll see more issuance.”
To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net
http://jodnet.blogspot.com
0 التعليقات
Post a Comment