Magazine article American Banker

Banks Seen Shunning Debt Market

Magazine article American Banker

Banks Seen Shunning Debt Market

Article excerpt

Bank bonds have been largely spared the sell that has buffetted bank stocks. But the recent run-up in Tuesday bond yields may keep banks out of the debt market for the near term.

The rise in yields makes it more expensive for banks to issue debt.

After falling steadily for months, yields on U.S. government securities have reversed field in the past week, rising roughly 30 basis points for the medium- and long-term issues.

Measuring Cost Increase

"It is 30 to 40 basis points more expensive now than a month ago, mostly because of the Treasuries," said Ray Warner, an investment banker at Salomon Brothers Inc.

"People will wait for the return of a more favorable tone to the marketplace," he added. "Unless you get some rousing rally in the bond market, there's nothing to spark a major rally in spreads or issuance."

The bond markets have been a major source of funding for banks in the past year, as they took advantage of the lowest yields in 20 years as well as improved investor sentiment toward their industry. In the first half, banks issued about $17 billion in debt.

Republic New York Corp., Banc One Corp., Bankers Trust New York Corp., BankAmerica Corp., and NBD Bancorp issued debt recently, at yield spreads comparable to their previous issues.

Watching and Waiting

But the slight increase of bank bond yields and the uncertainty about interest rates now are keeping some banks on the sidelines.

"We aren't rushing to issue," said Peter Manning, chief financial officer of Bank of Boston Corp. …

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