UPDATE 2-US 1st-half corp bond sales fall-Thomson Reuters
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By Dena Aubin
NEW YORK, June 30 (Reuters) - U.S. high-grade corporate bond sales fell in the first half as financial firms shifted issuance to government-backed debt, while junk bond sales surged as risk appetite returned, data showed on Tuesday.
Excluding government-backed sales, investment-grade corporate bond sales fell to $384 billion from $503 billion a year earlier, according to Thomson Reuters data.
U.S. junk bond sales rose to $58 billion from $31 billion a year earlier.
JP Morgan Chase & Co (JPM.N) was the lead bookrunner for high-grade corporate bond sales in the first half, followed by Bank of America Merrill Lynch (BAC.N). Bank of America was lead bookrunner for high-yield bond sales, followed by JP Morgan Chase.
In the high-yield market, powerful cash inflows, which increased as the market rallied, were a key factor behind the strong issuance, said John Cokinos, head of high-yield capital markets at Bank of America Merrill Lynch.
"Success begat success in the marketplace," he said. "Deals traded well, priced well, investor demand increased, mutual fund inflows increased, and we had a very robust technical environment."
RECOVERING FROM CREDIT CRISIS
High-grade issuance totals were distorted by a shift of financial issuance in the first half to the Temporary Liquidity Guarantee Program, created to give banks access to low-cost financing during last year's financial crisis. Debt sales under that government program are guaranteed by the Federal Deposit Insurance Corp and carry top AAA ratings.
Counting $160 billion of government-backed issuance in the first half, high-grade bond sales by U.S. corporations were actually higher than a year earlier.
Issuance was healthy partly because borrowers were catching up after last year's market dislocations and prefunding some financing needs while demand was good, said Jim Merli, head of U.S. fixed-income syndicate at Barclays Capital.
"April, May and June were all very positive months for the credit markets in terms of excess return performance and therefore the investor appetite continues to be strong," he said. Excess returns refers to extra returns over those on U.S. Treasuries.
Demand for corporate debt revived after the Federal Reserve in December cut interest rates to near zero, nudging investors into riskier assets in a search for yield.
MARKET REOPENS TO RISK
As riskier debt rallied, the high-yield bond market attracted torrents of investor cash, opening financing to lower-quality issuers.
"The risk complexion has moved outward," said Cokinos of Bank of America Merrill Lynch. "We've seen transactions for retail, gaming, consumer companies, deep cyclicals. They have to be strong names in those spaces but the ability to do a tougher deal is certainly available now and I think that's a change from the beginning of the year."
Year-to-date, investors have poured nearly $20 billion into junk bond funds, according to AMG Data Services. The cash helped junk bonds post an astonishing 29 percent investment return in the first half of the year, according to Bank of America Merrill Lynch data. High-grade corporate bonds returned 9 percent in the first half.
In the high-grade area, first-half totals were boosted by acquisition financings from pharmaceutical companies, deals that are unlikely to be matched in the second half.
Syndicate officials do not expect the robust pace of the first half issuance to be sustained.
"We think it is going to continue to be active but not quite as active as it's been," said Barclays' Merli.
"Other options are available to these companies in terms of financing, and the requirements aren't as strong," he said. "Broadly speaking, companies are not aggressively ramping up capital expenditures or executing a lot of mergers and acquisitions, so the need for incremental cash is not as great."
(Reporting by Dena Aubin; Editing by Chizu Nomiyama)
