NEW YORK -- Sales of U.S. investment-grade corporate bonds revived on Wednesday after the Federal Reserve reassured the markets about economic growth, with Merrill Lynch , Citigroup, Kraft Foods and several other companies marketing deals, according to an underwriter.
The tone in the corporate bond market was stronger on Wednesday for the third day in a row, fueled by investors with pent-up cash after a lull in supply, said Vincent Murray, head of investment-grade syndicate at ABN Amro in New York.
A benchmark-sized dollar bond being priced on Wednesday by Russian natural gas company Gazprom was doing "extremely well," Murray said. ABN is lead manager for the sale.
Gazprom's bond issue was first marketed at the end of July but the company put off pricing until turmoil in the credit market abated.
Indonesian mobile phone operator PT Mobile-8 Telecom priced a smaller-than-expected $100 million high-yield bond on Wednesday. The company had said on Monday it was considering whether to proceed with the bond sale, expected then to total $150 million.
Story Continues Below
Sales of U.S. investment-grade and speculative-rated bonds plunged by 77 percent last month to just $22 billion, according to financial data provider Dealogic. Credit markets were rattled by concerns about subprime mortgage losses and a spate of financings for leveraged buyouts that were pulled, leaving billions of dollars of unsold debt on investment banks' books.
A successful bond sale on Tuesday by Bear Stearns Cos. illustrated that demand was back, investors said. Bear Stearns on Tuesday sold $2.25 billion in five-year medium-term notes, though it had to pay up to complete the sale, offering a yield spread of 2.45 percentage points more than Treasuries.
"Investors seem to be willing to take on some added risk at this point," said Dan Sheppard, a director at Deutsche Bank Private Wealth Management in New York. "Who knows how long it will last."
In another sign of improved sentiment, yield spreads on brokers' bonds were about 20 to 30 basis points tighter on Wednesday, Sheppard said. Brokers' bonds had been battered recently amid concerns about their exposure to subprime mortgage losses and failed buyout financings.
Corporate bonds initially showed little reaction on Tuesday after the Federal Reserve held interest rates steady and said inflation remains its main concern. The market appears to be rallying now partly on the Fed's assurance that the housing slump won't stall economic growth, investors said.
"They (Fed officials) consider subprime to be less of an issue than the people who have been doing nothing but fixating on it for the last two or three months," Sheppard said.
© Reuters 2007. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters.
Editor's note:
The 99 stocks you need to dump in 2007 . . . and the 10 to buy! Get our free report today.
Best way to insure your investments from a 2007 market crash.
Try Intelligent Options for $99. Our lowest price ever.
