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Why financial sector firms are notable high-grade bond issuers

Phalguni Soni

Must-know: Corporate debt market reactions to FOMC minutes (Part 6 of 9)

(Continued from Part 5)

Financial sector firms are high-grade bond issuers

Investment grade corporate borrowers (LQD) issued $21.1 billion worth of debt in 21 transactions in the week ending July 11. In this section, we’ll continue our discussion of the various components, concentrating on the break-up of issuance volumes by sector.

Investment-grade debt issuance by sector

Financial sector firms issued the most debt last week, making up ~58% of total issuance volumes at $12.3 billion. These included American International Group’s (AIG) $2.5 billion two-tranche bond offering and Moody’s (MCO) $750 million two-part offering. Both MCO and AIG are part of the SPDR Financial Select Sector ETF (XLF) and the S&P 500 Index (SPY).

AIG’s two-tranche offering consisted of $1 billion in senior unsecured notes issued at a coupon of 2.30%, due in five years. The second tranche of $1.5 billion in senior unsecured notes was issued at a coupon of 4.50%, due in 30 years. The notes were rated Baa1. The proceeds from the debt sale are earmarked for general corporate purposes.

Moody’s issued $750 million in two tranches—$450 million in 2.75% five-year senior unsecured notes and $300 million in 5.25% senior unsecured notes due in 30 years. The company plans to use the proceeds for refinancing older debt and for general corporate purposes, including funding share buybacks and acquisitions.

Other prominent issuers in the financials sector (XLF) included Bank of Montreal at $1.3 billion, and DBS Group Holding at $1.25 billion.

Domestic corporate bond issuance—excluding financials

Domestic corporate borrowers issued about $2.5 billion in debt in the week ending July 11. There were only two issuers, both in the automobile sector. Issuance has been lower among corporates due to the blackout period preceding the quarterly earnings releases.

General Motors Financial Co. came out with a two-tranche issue. $700 million worth of 2.625% three-year notes and $800 million of 3.5% notes due in five years.

American Honda Finance came out with a two-part $1 billion issue. $650 million worth of 1.20% three-year notes and $350 million of three-year Floating Rate Notes.

In the next section, we’ll analyze secondary market trends seen in the investment-grade bonds market last week.


Continue to Part 7

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