US companies sell debt at fastest pace since March

NEW YORK, June 22 (Reuters) - U.S. companies are selling bonds at the fastest pace since March as fading concerns over a European debt crisis boost investor demand, and the strong issuance may last for weeks, bankers said on Tuesday.

U.S. corporate bond sales last week totaled nearly $16 billion, the most since the week ended March 26, according to data from IFR, a Thomson Reuters Service. Another $10 billion was sold on Monday, the busiest day of the second quarter, and about $20 billion is expected for the week.

"You have the potential makings of a very busy next six to eight weeks leading up to mid-August, when we start seeing a modest break," Larry Wieseneck, head of global finance and risk solutions at Barclays Capital, said at a press briefing on Monday.

Low yields on U.S. Treasuries, the benchmark for corporate borrowers, are allowing companies to sell 10-year bonds at less than 5 percent, a "gift" that more issuers will take advantage of, he said.

Corporate bond supply typically slows around mid-August as market participants leave for the last of summer vacations, though in recent years the lull has not been as pronounced.

Passage of a federal banking reform measure expected by the Fourth of July holiday could remove one of the clouds hanging over corporate bonds, strategists said, helping the market environment even more.

SUPPLY DOWN 24 PCT

Tensions caused by the European sovereign debt crisis appeared to be easing last week, raising hopes that investors will venture back into riskier securities in the second half of the year. For details click on [ID:nLDE65J0BW]. A flight from risk curbed demand for corporate bonds in May, leaving issuance at $25.6 billion, the lowest since December 2008.

"We're anticipating the period of volatility and bearish headlines will subside," said Edward Marrinan, head of U.S. macro credit strategy at RBS Securities in Stamford, Connecticut. "The euro area will emerge from this period of volatility with some bruises and bumps but intact."

Marrinan said he is expecting about $600 billion of U.S. corporate bond supply for the full year, or about double where volumes stand now.

Companies have sold $307 billion of corporate bonds so far this year, a nearly 24 percent drop from last year's $380 billion.

One reason for the lower supply is that companies have done a good job of repairing balance sheets and are holding record amounts of cash, so many don't have as much need to borrow, Marrinan said.

Still, the lull in May has left a backlog of issuers who would like to come to market if they can be confident deals will be well placed and perform well in the after market, he said.

That was the case last week, when spreads on most new issues tightened in the secondary market, according to dealers.

HIGH-YIELD INVESTORS CAUTIOUS

High-yield issuance has been slower to pick up, though three sales managed to clear the market in the last three sessions and two more deals were in the market on Tuesday.

"The fact that Treasury yields are down where they are means there's still a flight to quality and conservatism," said Kingman Penniman, president of high-yield research firm KDP Investment Advisors in Montpelier, Vermont.

If the U.S. economy manages to keep growing and stocks post a stronger performance, demand may improve, he said.

"As soon as there's stability in the market, people are going to come back to that 9 percent yield," Penniman said, referring to average yield on U.S. junk bonds.

In the U.S. high-grade market, issuance from European borrowers could add to supply in the second half, strategists at Barclays Capital said at their press briefing.

Year to date, issuance of so-called Yankee corporate bonds, or those sold in the U.S. by non-U.S. companies, is up 26 percent at $150 billion, according to Thomson Reuters data. (Editing by James Dalgleish)