US corp bond sales climb as risk appetite returns

NEW YORK, March 10 (Reuters) - U.S. corporate bond issuance is on pace for one of the busiest weeks of the year, with more than $23 billion already priced as receding worries about sovereign risk and strong earnings underpin demand, strategists said.

Recovering from a brief selloff sparked by a Greece budget crisis, investment-grade corporate bond yield spreads hit their tightest levels in seven weeks on Monday, creating a strong backdrop for new bond sales. Yield spreads tighten as perceived risk of corporate bonds falls.

"The market's tone improved as we got past the Greece-driven risk flare," said Bob Bishop, senior portfolio manager at SCM Advisors in San Francisco. "People who had been sitting on the sidelines had a lot of money to put to work."

Bank of America (BAC.N), BNP Paribas (BNPP.PA) and DirecTV Holdings are among companies selling bonds this week, taking advantage of corporate bond yields that are close to five-year lows. About $22 billion was sold on Monday and Tuesday alone, about triple the amount sold in the first two days of last week, according to data from IFR, a Thomson Reuters service.

"The market right now appears to be in very good shape and a lot of the financing you're seeing is opportunistic," said Jim Glascott, head of global debt capital markets at Barclays Capital.

"The incredibly challenging market conditions of the second half of 2008 and first part of 2009 are still fresh in the minds of issuers, so when they see an attractive financing window, they tend to access the markets," he said.

HIGHER RATES FEARED

Strategists expect the uptick in sales to continue, as March is historically one of the busiest months for corporate bond issuance. Sales slow in February because many companies are in blackout periods until they file annual reports, so sales surge in March as companies catch up.

"The issuance is partly a response to consistent demand for investment-grade corporate bonds and fixed-income securities in general", said Scott Flieger, chief operating officer for debt capital markets at Deutsche Bank in New York.

"It's an asset class people feel extremely comfortable with because of the general stability of fixed-income securities relative to the equity market," Flieger said.

A better-than-expected earnings season has also underscored the strong credit profile of U.S. companies, bolstering demand. Earnings for the fourth quarter were about 7 percent above expectations, compared with an average beat of 2 percent since 1994, according to Thomson Reuters data.

While many companies have ample cash on their balance sheets, they are selling debt now in anticipation that borrowing costs will eventually rise as inflation worries push interest rates higher, investors said.

REFINANCING YEARS IN ADVANCE

Borrowers have also learned lessons from companies such as General Growth Properties (GGP.N), which had a large amount of short-term debt and ended up filing for bankruptcy, SCM Advisors' Bishop said.

"You've got to watch your business and make sure you don't have too much refinancing to do, so I think a lot of companies are getting ahead of refinancing needs years in advance now," he said.

Some high-yield issuers are even refinancing debt due in 2014, he noted. "I don't think I've ever seen this many corporate treasurers looking that far out in terms of getting their refinancing done," he said.

Five high-yield issuers announced deals on Wednesday, including GMAC, which is doing a "drive-by," or quick-to-market issue, according to high-yield research firm KDP Investment Advisors.

"In the context of the funding challenges the company has faced over the past few years, we view its ability to access the capital markets via drive-by benchmark offerings like this one as an important development," KDP analyst Thomas Ferguson said in a research note.

Demand is also strong for highly rated companies like Swiss pharmaceutical giant Novartis (NOVN.VX) (NVS.N). Its subsidiary Novartis Capital Corp on Tuesday sold the week's largest deal, a $5 billion offering, increasing it by 25 percent in response to demand, traders said. (Reporting by Dena Aubin; additional reporting by Tom Ryan; Editing by Kenneth Barry)