The US dollar high grade market was becalmed this week, busy digesting the previous week's heavy supply of global issuance, and ahead of next week's FOMC meeting and the super-jumbo from Deutsche Telekom. The sector remained stable ahead of the meeting, with most analysts believing the Fed will leave rates unchanged. Traders in the US expect the dollar leg of the DT transaction to exceed the originally planned $5bn size, suggesting that the entire $8bn needed could be taken out of the US dollar market alone. Some pressure was brought to bear on the deal on Thursday when Moody's put the borrower's Aa2 rating on negative outlook. But bankers report an overwhelmingly positive response to the three tranche dollar bond, which will target the five, 10 and 30 year sectors. The withdrawal of a 30 year $2bn-$3bn transaction by Ford Motor Co off its GlobLS programme should divert additional demand into the DT 30 year. Ford's funding aspirations were dashed by widening swap spreads which made its targets unachievable. Quick to take advantage of the gap left by Ford, TVA issued a $1bn 30 year bond to be priced today (Friday) at 4bp-5bp over Fannie Mae's January 2030 Benchmark Bond, and the State of Qatar successfully raised $1.4bn in 30 years. Next week's DT dominated pipeline also includes a $4bn five year Reference Note for Freddie Mac, via Goldman Sachs, Salomon Smith Barney and UBS Warburg, and a $500m global from John Hancock Global Funding, through Lehman Brothers and UBS Warburg. The euro sector once again suffered from a sliding currency which, on Thursday, fell to a three week low, once more raising concerns that more interest rate rise are to come to support the currency. New mandates in the euro zone include SNCF's appointment of ABN Amro and SG to launch a Eu500m-Eu750m 10 or 11 year issue. The deal is expected to pay around 6bp over Euribor. Italian publisher SEAT Pagine Gialle has chosen BNP Paribas and Lehman Brothers to lead its debut in the international capital markets. A Eu1bn issue is expected late next week split into two tranches - a three year FRN and a five year fixed rate bond. SEAT is unrated but is regarded as a triple-B credit, with revenues of Eu985m and a dominant role in the directories market in Italy. SEAT ranks as Italy's leading directory advertiser, on-line advertiser and office solutions provider. As a result of the forthcoming merger with Tin.it, SEAT is set to be Italy's top internet company and a European leader. Bankers expect pricing in the Euribor plus 95bp area for the five year bond and plus 70bp area for the three year floater. Proceeds of the deal will be used to pay down a loan. Lafarge will start roadshowing a Eu500m issue via BNP Paribas and Schroder Salomon Smith Barney on July 3. A seven year transaction is expected. UK engineering firm TI Group is set to launch its sterling and euro issues next week with HSBC and UBS Warburg leading the £200m 10 or 15 year tranche, and Deutsche and Schroder Salomon Smith Barney leading the Eu400m seven year offering. The spread on the euro portion is in the 80bp-85bp over swaps area, with a spread of 100bp over in sterling. Ballooning swap spreads in the sterling market, however, said to be caused by paying interest for the DT transaction, have made life difficult for all potential sterling issuers. TI's hope of paying around 250bp-260bp for a 10 year issue, or around 280bp for a 15 year, were probably dashed by the extreme movement in spreads. Ten year swaps, for example, widened by 19bp over the week, but the 30 year sector behaved more dramatically, widening by 30bp in just two days. The swap spread widening led arbitrage driven triple-A issuers to launch £650m of taps across the curve. Triple-As outperformed the swap move, with EIB 6% 2003 widening 2.5bp to close at 53.5bp mid, EIB 5.5% 2009 widened 14bp to close at 110.5bp mid, and the EIB 6% 2028 widened 19.5bp to close at 137bp mid.
June 23, 2000
