Economic data from the US continue to demonstrate that the economy is cooling down. After encouraging non-payroll figures released last Friday and higher than anticipated jobless claims on Thursday, confirmation of the trend is expected this (Friday) afternoon, with PPI and retail sales numbers. As a result, the Treasury market has rallied strongly and swaps spreads have tightened significantly, giving investors confidence to digest over $15bn of dollar issuance this week. Deals have been increased in size and priced at the tight end of price talk. Fannie Mae increased its new five year Benchmark Note from the scheduled minimum $4bn to $5.5bn, and priced it 0.5bp inside its February 2005 transaction, at 82bp over Treasuries. Repsol was able to increase its debut global five year bond from $700m to $1.25bn. The Yankee bond for Abitibi Consolidation was a fantastic success, reportedly attracting a $10bn book for the $1.4bn on offer. Most deals tightened by several basis points in the buoyant market environment. Spain finally came to the market with its debut global, a $1.5bn five year bond to be priced today at 5bp over agencies. Criticisms over the timing aside - launch late yesterday afternoon in Europe for pricing in New York this afternoon - the deal generated strong demand on the basis of rarity of sovereign debt in the global market. Dutch retailer Ahold is preparing to issue a $500m Yankee in the coming week via JP Morgan. The borrower is said to be looking at a $500m 10 year and/or a 30 year transaction. Meanwhile, talk continues of jumbo financings for British Telecom and France Télécom, with BT expected towards the end of July and France Télécom in September. A strong bid for floating rate product and the lack of supply drove spreads tighter, creating a welcome backdrop for a Bear Stearns $500m five year transaction due to be launched today at Libor plus 62.5bp. Buoyant German retail sales and a weak euro, which this week reached new lows of US$93.4/Eu, failed to diminish the bullish sentiment in the euro denominated sector. Bankers reported renewed buying by investors and a willingness to extend duration. In that context, deals for BASF, Lafarge and Sara Lee were increased in size, priced at the tight end of talk, and tightened in aftermarket trading. Several corporates are preparing to launch transactions before the summer lull, including Italian multi-utility Acea, which starts roadshows next week before launching its debut in the international capital markets via JP Morgan. Acea is 51% owned by the City of Rome. UK utility NorthWest Water is reportedly seeking euro denominated funding, but conditions are expected to be stringent for the issuer on the back of credit concerns raised by Kelda and Hyder. And Chase Manhattanand BCI will next week launch a Eu200m five year bond for Italian Gruppo Editoriale L'Espresso. The unrated deal is expected in the swaps plus mid-80s area. Enthusiastic take-up of this week's euro floaters has encouraged several more issuers into the market. San Paoli IMI is set to launch a Eu500m seven year floater via Chase Manhattan and SG. Pricing is said to be in the Euribor plus 20bp area. And Fiat is embarking on roadshows on Monday and Tuesday next week with a view to launching a Eu500m five year FRN on Wednesday via Deutsche, Mediobanca and UBS Warburg. Price talk is in the Euribor plus 50bp area. A Eu500m two year transaction for state-owned Italian post office Post Italiane SpA is expected as early as today via Lehman Brothers and Merrill Lynch, and Renault Credit International is set to launch a Eu200m four year floater via WestLB in the coming days. Dai-Ichi Kangyo Bank is preparing to launch a Eu500m 10 year subordinated bond next week via JP Morgan. The uncertainty for Japanese credits created by this week's bankruptcy of the Sogo department store group will not provide a comfortable environment for DKB. However, in its favour is its future merger with IBJ and Fuji to create the largest Japanese bank - Mizuho Bank.
July 14, 2000
