By Steven Levine

NEW YORK, Oct 19 (MNI) – The frenzied pace of fresh, investment-grade
corporate bond issuance that rattled the docket this week is expected to
continue, as the ultra-low U.S. interest rate landscape lures issuers, and
demand for yield remains insatiable.

While a small crowd of high credit quality corporate and sovereign debt
offerings surfaced Friday, a total of $37.25 billion of new bonds were sold so
far this week. This compared to estimates for a tally of around just $15
billion.

Demand recently for new investment-grade product “remains on fire,” noted
Ron Quigley, fixed income syndicate head at Mischler Financial. He noted that
opportunities for financing “are as good as they’ve ever been, and we don’t see
it slowing down anytime soon.”

Quigley cited for example that the cumulative order book for United Health
Group’s $2.5 billion of single-‘A’ rated debt Wednesday was about $25 billion,
or ten-times oversubscribed.

“At the end of the day, we see no end in sight to what’s going on in the
primary markets,” he added, which “is all motivated by the low-rate environment”
— not to mention the continued voracious “demand on the part of investors who
need to put their money to work.”

While investment-grade corporate bond spreads Friday were mainly wider by
about 10 bps in the intraday New York trading session, newly issued deals topped
the most active list, according to MarketAxess data.

By midday, total estimated volume was last over $8.5 billion. The 10-year
U.S. Treasury note hit an intraday low yield of 1.762% after reaching a high
yield of 1.829% in overnight activity, according to one broker screen.

Among the most traded investment-grade corporate bonds:

Morgan Stanley’s 4.875% 10-year notes were last tighter by 5 basis points
from their initial price level Thursday at a spread of 305 bps more than U.S.
Treasuries of similar maturities;

Oracle’s 2.500% 10-year bonds were last 9 bps better than their initial
price level Thursday at a spread of 59 bps more than matched-maturity U.S.
government debt; and

United Health Group’s 0.850% 3-year notes were last weaker by 1 bp on the
day at a spread of 30 bps more than comparable U.S. Treasuries, but still
improved by 15 bps from their initial price level Wednesday.

Traders have said recently that demand for yield among bond investors has
also led some accounts to shift to riskier asset categories.

For example, some investors of U.S. Treasuries have been said to be
shifting some money Wednesday from U.S. government bonds to high grade corporate
debt, and to a lesser extent to corporate junk bonds.

At the same time, there is chatter in the market that investment-grade
corporate bond buyers have been moving down in credit quality in their clamor
for yield. They have been said to be diving recently into riskier assets such as
corporate junk bonds, certain consumer asset-backed securities and commercial
mortgage-backed securities.

For some, covered bonds present another investment option.

“Spreads have come in tight,” said Manish Kapoor, managing principal of
West Wheelock Capital, speaking Wednesday at IMN’s Fourth Annual Covered Bonds
Americas conference. There is “significant demand for covered bonds as an
alternate senior proxy for people to take on extra yield of around 20 bps to 30
bps,” he said. Kapoor’s portfolio has been generally focused on structured
products.

However, with respect to European covered bonds, Kapoor stressed that he
“would like to see more regulatory certainty with pending proposals” across the
region, as well as “some level of harmonization between regulators across
different jurisdictions.”

But on the supply front, new issuance of investment-grade corporate debt is
likely to continue its frenetic pace. More than $18.5 billion of new deals
priced on Thursday to a yield-hungry crowd of bond investors, outpacing most
Street projections for the week in a single day.

While consensus among many investment-grade corporate debt syndicate
managers for next week’s supply ranged from $15 billion to $20 billion, other
market sources said that the level could well be higher given the recent influx
of sales. Sources also speculated that the potential offerings will likely be
front-loaded, as the amount of pending U.S. economic data weighs more heavily in
the later part of the week.

Most issuers next week will also likely announce new bond deals with
10-year maturities. One manager said that while “the front end has money that
needs to be put to work, the sweet spot in the curve is still the 10-year.”

Investment-grade debt issuance Friday was comprised of four 10-year deals.
These included:

$2.25 billion of sovereign notes from the Republic of Slovenia in its
inaugural U.S. dollar bond sale. The private placement issuance sold the
issuance at a price to yield 5.70% versus initial price talk in the low 6.0%
area. The deal, rated ‘Baa2′ by Moody’s Investors Service and ‘A’ by Standard &
Poor’s, was jointly led by BNP Paribas, Deutsche Bank and J.P. Morgan.

Anadolu Efes priced $500 million of triple-‘B’ rated, 10-year notes in a
private placement sale at 175 bps more than comparable U.S. Treasuries; North
American Development Bank priced $250 million of 10-year bonds at 65 bps more
than U.S. government bonds of similar maturities; and Texas Eastern Transmission
launched $500 million of ‘BBB’-rated, 10-year debt in a private placement at 105
bps more than U.S. Treasuries.

While U.S. corporate quarterly earnings season continues at full steam,
many domestic firms face their respective regulatory blackout periods, however
that has not hindered a swarm of overseas-based issuers from announcing new high
grade debt. Korea Expressway, Akbank, Sydney Airport, Xstrata Finance, PTT PCL
and Sberbank were among the firms that sold fresh debt offerings this week.

And a host of sovereigns could announce new bond sales as soon as next
week. Among the global names stacking up in the pipeline are Sweden, the
Republic of Chile, Uruguay, Morocco and Costa Rica.

In the agency bond market, Fannie Mae is scheduled Thursday, October 25 to
announce its Benchmark Note issuance. This is its second calendar slot this
month. On its previous October 16 calendar date, the agency reopened its 0.50%
Sept 2015 Benchmark Note for $1 billion via an Internet auction.

For additional supply offerings, see the full listing of deals on
the US$ Credit Supply Pipeline, an abbreviated list of which is appended below.

US$ CREDIT SUPPLY PIPELINE – October 19, 2012

WTD: 34,250
MTD: 72,100 MTD 2011: 23,350 YTD: 1,024,630

Investment-grade $250M+
Deals Announced/Launched(#)/Priced(*)/Pass(X)
Date $MM Issuer/CR/Descr Mat Yield Lead(s)
10/19 500 #Texas Eastern Transmission 10 T+105 JPM/RBC/RBS/
(Baa1/BBB+) 144A Reg S STRH
10/19 500 *Anadolu Efes (Baa3/BBB-) 10 T+175 BAML/HSBC/
144A Reg S JPM/RBS
10/19 250 *North American Development Ba 10 T+65 BAML/BNP
(Aaa/AA+)
10/19 2250 *Republic of Slovenia (Baa2/A) 10 5.70% BNP/DB/JPM
144A Reg S, T+389.7
10/18 600 *Bank of New York Mellon 3 T+33 BoNY/MS/RBS/UBS
(Aa3/A+) Fixed
10/18 400 *Bank of New York Mellon 3 3mL+23 BoNY/MS/RBS/UBS
(Aa3/A+) FRN
10/18 500 *Bank of New York Mellon 5 T+55 BoNY/MS/RBS/UBS
(Aa3/A+) Fixed
10/18 2000 *Sberbank (Baa1/BBB(F) 10 5.125% HSBC/JPM/SBK
T+331.7
10/18 2000 *Morgan Stanley (Baa2/BBB+) 10 T+310 MS
Subordinated notes
10/18 500 *PTT PCL (Baa1/BBB+) 10 T+160 BAR/C/DB/
144A Reg S, Thailand JPM
600 *PTT PCL (Baa1/BBB+) 30 T+160 BAR/C/DB/
10/18 144A Reg S, Thailand JPM
10/18 300 *RPM Intl (Baa3/BBB-) 10 T+165 RBS/WFS
101 CoC Put
10/18 2500 *Oracle Corp (A1/A+) 5 T+45 C/JPM/RBS/WFS
10/18 2500 *Oracle Corp (A1/A+) 10 T+68 C/JPM/RBS/WFS
10/18 1250 *Xstrata Finance (Baa2/BBB+) 3 T+140 BAR/JPM/MIZ/RBS

10/18 1750 *Xstrata Finance (Baa2/BBB+) 5 T+170 BAR/JPM/MIZ/RBS

10/18 1000 *Xstrata Finance (Baa2/BBB+) 10 T+220 BAR/JPM/MIZ/RBS

10/18 500 *Xstrata Finance (Baa2/BBB+) 30 T+235 BAR/JPM/MIZ/RBS

** MNI New York Bureau: 212-669-6430 **

–email: slevine@mni-news.com

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