RPT-Fitch: Revived FI Issuance Boosts US Corp Bond Mkt to $5 Trillion

Mon May 12, 2014 8:04am EDT

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May 12 (Reuters) - (The following statement was released by the rating agency)

Financials posted more bond volume growth than industrials in the first quarter, propelling the U.S. corporate bond market closer to $5 trillion, according to Fitch Ratings. The trend is due to both improved bank lending activity and favorable borrowing conditions. Until recently, the U.S. corporate bond market's growth, up 36% since 2009, had been fueled almost exclusively by non-financial issuance.

The universe of financial bonds expanded 4% to $1.42 trillion in the first quarter of 2014 while industrial issues grew 2% to $3.43 trillion. Refinancing continued to represent a healthy portion of newly originated bonds -- about one-half of the $242 billion sold in the first three months of the year. However, in terms of net new debt, financials posted more growth than industrials.

Financial volume peaked at $1.9 trillion in 2007 and contracted to $1.3 trillion post crisis. From 2010 through 2012, volume remained range bound at this level. In 2013, financial issues grew 7% year over year while industrials rose 10%. The average coupon of investment-grade financial and industrial bonds sold in the first quarter of 2014 was 3.1% and 3.5%, respectively. At current rates and with sustained issuance volumes, borrowing costs on the existing stock of financial and industrial corporate bonds should continue to contract this year.

The average coupon of outstanding financial issues declined to 4.8% at the end of March from 4.9% at year-end 2013 and 5.1% a year earlier. The average industrial coupon was similarly down to 5.5% in March versus 5.6% three months earlier and 5.8% a year ago.

Floating-rate bonds' visibility increased in the first quarter of 2014. The issues represented 12% of newly originated bonds -- 23% of financial bonds and a multiyear high of 7% of new industrial bonds. The return of floating-rate bonds and a modest shift to shorter term debt maturities is a sign of a more balanced and less risk-averse market.

Downgrades and upgrades combined affected 1.2% of U.S. corporate bond market volume in the first quarter of 2014. Even across speculative-grade issues, rating activity on a par basis was fairly stable in the first quarter, with downgrades affecting 1.9% of bonds and upgrades affecting 1.7%.

For a full view of U.S. corporate bond market rating and issuance trends, please see "U.S. Corporate Bond Market Monitor" available at www.fitchratings.com.

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