Government bond markets fell sharply this week with interest rate fears continuing to plague the US Treasury and Bund markets. The yield on both the long bond and the 10 year Bund rose to their highest levels for two years. Bankers suggest that, in Europe, a 50bp ECB rate hike has clearly been priced into the market and that with rates having backed up so far, investors could return to the market. But with the year end and its accompanying slowdown rapidly approaching, few are willing to guess where the market will bottom out. The falling underlying markets added to volatility in swap and credit spreads, with rates moving so quickly at times on Thursday that finding a consensus level on new issues proved near impossible. Nevertheless, many borrowers were undeterred by the bearish market and supply picked up across both dollars and euros. The dollar sector experienced its busiest week for some time with over $12bn of debt launched into a generally improved market, although the picture was marred by a softer tone on Thursday. Nevertheless some highly successful bonds were dispatched into safe investor hands. The climax for the global sector was a $5bn three year reference note by Freddie Mac. It built on Freddie's aim to achieve wider international distribution, and the borrower was rewarded with over 50% of the bonds placed outside the US. DuPont achieved a debut global of blow-out proportions with its $2bn two tranche bond. Both tranches tightened significantly from their re-offer spreads. Sales were predominantly to US accounts. The World Bank and EIB are reportedly looking at major global dollar bonds and, following its successful euro debut this week, Vodafone is expected to raise $1.5bn to $2.5bn in the 10 year sector. Goldman Sachs is said to be close to the Vodafone mandate. Two deals demonstrated that the Eurodollar market is alive and well. A $1bn 10 year bond for the newly created JBIC was particularly notable being the first 10 year Eurodollar to be launched since May. And British Telecom surprised the market with a $1bn deal, its first major public bond issue in dollars since 1997. Next week, CSFB and Warburg will lead manage a $300m five year bond for unrated Swissair. In the floater market, CIBC is readying a $500m five year issue to be launched at Libor plus 15bp area. And Bank of Scotland is preparing a £1.5bn subordinated issue to back its £20.7bn bid for NatWest. CSFB and Morgan Stanley Dean Witter, Bank of Scotland's advisers, will underwrite the deal. Euro issuance was also brisk, with Crédit Local's Dexia Municipal Agency arm launching the second obligations foncières transaction, a Eu2.5bn two tranche deal. The five year tranche impressed more than the 10 year, although both were viewed as successful. Vodafone AirTouch stole the limelight in the corporate sector with its Eu1.5bn seven year bond. Hunger for the credit enabled pricing of 65bp over the Bund, considered fair despite lacking the new issue premium demanded on most recent corporate transactions. Electricidade de Portugal, Merloni and Norsk Hydro also successfully launched well flagged transactions and corporate supply is set to continue to boost euro volumes. ABN Amro and Chase should soon launch a Eu300m seven year transaction for Baa1/A- rated PBL, the Australian media company, at around Euribor plus 87bp. French motorway operator Cofiroute has mandated Paribas and SG for a Eu300m 10 year deal next week. Pricing in the high teens over Euribor is likely. And BNP and JP Morgan have been mandated by Usinor to launch a Eu300m to Eu500m five to seven year bond. Dresdner is to lead manage an up to Eu300m offering for Dyckerhoff for its takeover of Lone Star of the US. Dresdner is preparing a deal for Kugelfischer. La Poste has awarded the mandate for its Eu500m to Eu1bn likely 12 year deal to ABN Amro and CDC. Banks will bid for a Eu500m reopening of CNA's June 2011 transaction next week, with launch expected the week after.
October 15, 1999
