Magazine article American Banker

Tightening of Spreads Has Banks Scurrying Back to Bond Market

Magazine article American Banker

Tightening of Spreads Has Banks Scurrying Back to Bond Market

Article excerpt

Bankers often possess an uncanny ability to sniff opportunity, and the bank bond market has smelled especially sweet in the past month.

As bankers seek funds to fuel double-digit loan growth, tighter bond spreads have provided a cheap source.

Bankers Trust New York Corp., Chase Manhattan Corp., and First Union Corp. are among the contributors to a total of more than $2.175 billion in new notes issued by banks in April, said Ethan M. Heisler, a bank bond analyst at Salomon Brothers Inc.

The trend has continued in May, with $450 million in new issuance. "It's been more than a year since we've seen this volume of issuance this close together with such a positive market reception," said Mr. Heisler, who noted the issuance had been slow through the first quarter.

Analysts said bank bonds have tightened to within 5 basis points of the all-time record, and are as narrow as they are likely to get. "Banks are jumping on this opportunity," said Ann Robinson, a fixed-income analyst at Bear, Stearns & Co.

Citicorp is one of the latest to seize the moment, issuing $150 million of 10-year notes on May 1 priced at 67 basis points over comparable

Treasuries. That compares quite favorably with the price three years ago, when the money-center bank's 10-year notes traded 385 basis points over Treasuries, said Ms. Robinson.

Fixed-income investors, for their part, do not seem bothered by banks' comparatively tight spreads, and in fact have shown a healthy appetite for most of the new issues.

Positive first-quarter earnings, comfort with the economy, and interest rates have eased many of the concerns investors might have had with bank bonds. …

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