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Bonds News

US firms ready to unload blns of debt if mkt calms

NEW YORK, Aug 10 (Reuters) - U.S. corporations are hoping for a window of opportunity to market bond sales to investors next week, but further market gyrations could keep them away.

Companies sold roughly $15 billion of new corporate bonds on Wednesday after weeks of inactivity as worries about the spreading subprime mortgage meltdown lifted. But companies largely retreated as credit concerns returned to roil global financial markets on Thursday and Friday.

Many corporate borrowers are likely to make another rush next week if volatility in credit and stock markets clears long enough for investors to catch their breath.

“If we have some stability, there’ll probably be another day similar to what you had earlier this week,” with $3 billion to $10 billion of new high-grade deals sold, said Ira Jersey, U.S. credit strategist at Credit Suisse in New York. If “the market continues to be jittery, zero,” he said.

Bank of America Corp. BAC.N, the second-largest U.S. bank, on Friday sold $2 billion in three-year floating rate notes, market sources said. For details, see [ID:nN10209822].

Many of the deals sold earlier this week are now performing poorly in the secondary market, further weighing on market sentiment, sources said.

Merrill Lynch's MER.N 6.05 percent notes maturing in 2012, sold on Wednesday, are trading at 139 basis points over U.S. Treasuries, after reaching as wide as 150 basis points, after starting off at 138 basis points, according to MarketAxess.

Under normal circumstances, U.S. companies would be tapping buyers for $10 billion to $20 billion of cash a week.

Instead, a backlog of debt deals is developing. Roughly $100 billion of investment-grade bond supply is waiting in the wings, while $300 billion could arrive before the end of the year, according to Sid Bakst, portfolio manager at Weiss, Peck and Greer in New York.

In recent weeks, investors have boycotted riskier assets like U.S. investment-grade and high-yield bonds as troubles in the subprime-mortgage market, which caters to low-credit home buyers, have rippled outwards to global financial markets.

That has pushed corporate bond prices lower and yields for jittery would-be investors higher.

The average spread on a high-yield bond, or extra yield investors require to assume additional risk, hit 404 basis points on Thursday, roughly 38 percent higher than where it stood a month earlier, Merrill Lynch data show.

With their borrowing costs rising, many U.S. companies are trying their best to wait for a better time to secure financing.

MORE VOLATILITY? LESS DEBT SALES

Stock and credit markets took another hit on Friday after the U.S. Federal Reserve provided the banking system with $38 billion in three cash infusions. [ID:nN10263021]

“There’s a real desire to print transactions, at least from the dealer side,” said Greg Peters, chief credit strategist at Morgan Stanley in New York. But investors are “getting whipsawed by the volatility.”

The spread between yields on high-grade corporate bonds and ultra-safe U.S. Treasury debt widened by about 5 basis points earlier on Friday, while junk-rated bonds widened about 0.5 basis point on average.

“The (high-yield bond) market could take on a whole lot more debt once levels stabilize and issuers get comfortable with increased cost of funding,” said Christopher Garman, head of global high-yield strategy at Merrill Lynch.

But “the planning process that goes into new issues needs some regularity to the market, and levels are just all over the map,” he said.

Corporations are also avoiding launching new high-yield or leveraged loan deals, and it is very possible no loans will be sold next week, according to Reuters Loan Pricing Corp.

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