Jan 4 (IFR) - Yankee banks are lining up to price about
US$16bn of bonds in the week ahead, as they look to strike while
US banks are likely to stay out of the market because of
self-imposed earnings blackouts.
Syndicate desks are expecting about US$25bn of new deal
volume next week, about 65% of which will come from the
Financial Institutions Group (FIG) sector - primarily Yankee
"It's going to be busy, and I think you will see
representation from all parts of the world in the FIG new-issue
space," said one head of FIG syndicate at a major Wall Street
The Yankee banks are expected to issue in a variety of
forms, including senior unsecured, some capital securities
issuance like subordinated debt, and some covered bonds. No
contingent convertible bonds are believed to be in the pipeline
for the week ahead.
Favorable swap rates, at least from the perspective of the
eurozone banks, are driving issuance, enabling them to issue
dollar denominated short-dated bonds at around the same cost as
the price of new bond issues at home with the same maturities.
"From an economic standpoint the cost of issuing is similar
to what they could achieve in local currencies, but what they
are finding is the capacity is potentially larger in the US, and
clearly the tone is very strong for FIG paper at the moment,"
the syndicate head said.
Although European banks are in deleveraging mode, it makes
sense to achieve or maintain a foothold in the US bond market,
to diversify sources of funding.
Yankee banks that have shown a preference for January
issuance include Bank of Nova Scotia, which aimed for issuance
in the first weeks of the year in 2011 and 2012, as did Sumitomo
Mitsui Banking Corp and Banco Bradesco Cayman Islands.
Rabobank, the cream of the European crop, has also tended to
come to market in January.
Barring unforeseen events or overly aggressive pricing, the
Yankees will almost certainly receive a strong welcome from US
investors, who continue to focus on FIG as a way of getting the
best investment-grade bond returns.
Last year the FIG sector of the Barclays corporate index,
which includes Yankee bonds, achieved by far the best excess
returns in the investment grade market.
The FIG index ended 2012 with a spread of 145bp, 216bp
tighter than where it was at the end of December 2011. Bank
spreads are now only 12bp away from trading on top of US
industrial paper, the tightest that differential has been since
The US FIG sub-index of the Barclays investment grade
corporate index, which includes SEC-registered Yankee bank
issues, provided investors with excess returns (which exclude
the Treasury portion of a corporate bond yield) of 13.56% last
year, compared to 7.34% for industrials.
Investing in subordinated FIG paper reaped even greater
excess returns, at 16.86% versus 12.76% for just senior
Some US investors are also looking at euro-denominated bank
Excess returns on European Yankee FIG paper denominated in
euros was 8.97%, according to Barclays, but those that bought
subordinated euro bank debt received almost 24% returns.
The returns on perpetual preferred issuance by banks were so
stunning that some traditional fixed income investors are
looking to get into that market for the first time this year.
"I am looking at going down the capital structure of the
banks and buying capital securities like perpetual preferreds,"
said one investor. "The returns on these securities have been
off the charts - some as high as 30%."
Further spread tightening is expected for both US and Yankee
bank names this year, despite last year's extraordinary
Barclays is recommending that investors buy the higher-beta
US bank names, like Bank of America, Goldman Sachs and Morgan
Investors are also seeking out Yankee bank issuers with more
spread compression potential, like eurozone names.
This week names like Barclays and Royal Bank of Scotland
enjoyed twice as much spread tightening as US names after news
of the fiscal cliff deal in Congress.
Barclays 7.625% 2022s, for instance, traded 29bp tighter at
T+560bp, while RBS 6.125% 2022s were 20bp tighter at 343bp over
Treasuries on Wednesday, the first trading day after the deal
That compared with 12bp tightening of 10-year benchmark
bonds of Bank of America, one of the highest-beta US names.
"We expect to see continued spread compression between the
US banks and industrials, and especially for the higher beta
names like Morgan Stanley and Bank of America," said a leading
"We're also interested in the eurozone Yankee banks. We
expect they generally will continue to reduce their amount of
outstanding debt. We saw RBS tender for dollars and sterling
bond series this week, for instance."
For other related fixed-income quotations, stories and
guides to Reuters pages, please double click on the symbol:
U.S. corporate bond price quotations...
U.S. credit default swap column........
U.S. credit default swap news..........
European corporate bond market report..
European corporate bond market report..
Credit default swap guide..............
Fixed income guide......
U.S. swap spreads report...............
U.S. Treasury market report............
U.S. Treasury outlook...
U.S. municipal bond market report......