* Europeans dominate US supply via Yankee bonds
* Covered bonds market hits record level
By Alex Chambers and Jane Merriman
LONDON, Jan 15 Europe's banks have dominated a
rush of new bond issues this month, including in the U.S. dollar
domestic bond market, where they have made up the bulk of
issuance so far this year.
As Europe's banks start refinancing 935 billion euros
($1,349 billion) of debt falling due in the next three years
they are looking for cash wherever it's available.
Covered bonds have been in the spotlight as a relatively
low-cost instrument to refinance and extend maturity profiles
that became more truncated in the run up to the credit crisis.
Issuance of covered bonds, highly-rated securities backed by
pools of mortgages or public sector loans, has reached 21.9
billion euros this month, according to Thomson Reuters data.
Senior unsecured issues by national champion banks and also
some middle-tier institutions, have been a big feature in
financial issuance in the first two weeks of the year.
Government-guaranteed issues have fallen away sharply.
Government-backed bonds were a key source of funds for banks
this time last year when the credit crisis froze financial
European banks have made bigger inroads than usual into the
U.S. dollar domestic bond arena, known as the Yankee bond
Issuers, which have included Barclays (BARC.L), Credit
Suisse CSGN.VX, Deutsche Bank (DBKGn.DE) and Santander
(SAN.MC), have sold some $16.55 billion of Yankee bonds so far
this year, according to Thomson Reuters data.
European banks have made up the bulk of new issuance in this
market, which has seen total issuance of some $24.57 billion,
according to the data.
After the credit crisis, the bar has been lowered on where
borrowers believe it makes sense to establish global debt or
U.S. issuance programmes, said Jonathan Fine, managing director,
US investment grade syndicate at Goldman Sachs.
"Back in 2006/7 that bar was set at maybe $30 billion of
annual funding requirement, now I'd say it's as little as $10-15
billion," he said.
Yankee financial sector (bank) bonds are supplanting U.S.
domestic bank issuance which Fine expects to remain subdued in
The US bond market has always been attractive to
non-domestic issuers as it is the deepest liquidity pool.
But there is an added bonus for euro-based borrowers to sell
bonds in dollars and swap the proceeds back to floating-rate
"There is a continued dislocation in the dollar/euro basis
swap. It has been coming in, due to the sheer level of issuance,
but for a two-year maturity is greater than 20 basis points,"
Frenetic bond issuance in January, also reflects treasurers'
fears that funding could become expensive if government bond
January's rush is not even a function of concerns that credit
spreads will widen but shows views on where yields are heading.
"If you are a single A or BBB borrower the likely most
volatile component of coupons over the next six months will be
the underlying treasury rate rather than credit spreads," said
"Interest rate volatility will be an important factor to
manage in 2010. The 50 basis points weakening in 10-year
Treasuries during December made a lot of people sit up and think
about the possibility of significant rises in long-term interest
Average Triple B corporate bond spreads are 236 basis
points, compared to 760 basis points at end-December 2008,
according to Moody's Capital Markets Research. 10-year
Treasuries are at 3.8 percent, up by 1.3 percent on the year.
That explains some of the front-loading of supply so far in
2010, bankers said.
A year ago, large companies made a strategic decision to
transform the composition of their balance sheets, replacing
bank debt and commercial paper with longer dated bond finance.
"The capital markets are eroding European corporates'
reliance on bank lending as their main form of financing," said
Larry Wiesneck, head of global finance and risk solutions,
This has manifested itself in unusually high amount of
high-yield bonds, including lots of unrated companies. Already 5
billion euros equivalent is being marketed or has already been
issued, compared with 29 billion euros for the whole of 2009.
(Editing by Sharon Lindores)