Bank of America Corp. and Citigroup Inc. are about to be "two of the stars" in the bond market next year, said Mark Kiesel, global head of corporate bond portfolio at Pimco in Newport Beach , California. The largest U.S. lenders are an attractive value compared to "all banks can be bought in the world," he said. So Pimco " Pacific Investment Management Co" is betting on U.S. debt bank rally in 2011 when the economy accelerates.
Pimco, which increased its economic growth forecast last week, is backing bank bonds after the values returned 7.62 percent this year compared with 7.95 percent gain in the company's debt level investment of Bank of America Merrill Lynch index data show. U.S. corporate borrowers will benefit the economy revives after the agreement of President Barack Obama to extend the tax cuts, said Kiesel.
"That was the catalyst that led to the upward revision of growth," said Kiesel, who was nominated for the fixed income manager of the year by Morningstar Inc. "What Obama is showing signs of readiness to move more toward the center net-net is going to be slightly more positive for business. "
Bank of America sold $ 1.5 billion of bonds yesterday in its first offering of fixed rate debt in four months. The largest U.S. lender asset has faced demands from investors to buy billions of dollars in soured mortgages.Basel III
Charlotte, North Carolina-based Bank of the United States ratio of Tier 1 capital, the most important regulatory measure of a bank's financial health, rose to 8.45 percent last quarter. The Group of 20 last month approved the rules, known as Basel III, setting the minimum 7 percent.
"It is improving the balance that is history," Kiesel said in a telephone interview.
Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than government debt of similar maturity was unchanged at 171 basis points, or 1.71 percentage points below this year high of 201 basis points in June, Bank of America Merrill Lynch Global Corporate broad market index shows. The average yield of 4.034 percent.
The Barclays Capital Global Aggregate Bond Index lost 1.02 percent this month, cutting profit this year to 3.13 percent.
Default Swaps Rise
The cost of protecting U.S. corporate bonds increased by default. The Markit CDX North America Investment Grade Index, which investors use to cover losses on corporate debt or to speculate on creditworthiness, an increase of 0.72 basis points at an average price of 86.8 basis points from the 11:58 in New York, according to Markit Group Ltd.
The credit index swaps, which usually increases with deteriorating investor confidence falls, as it improves, has fallen from 99.4 in late November. The credit-default swaps pay the buyer face value if a borrower defaults on its obligations, less the value of the defaulted debt. A basis point equals $ 1,000 annually on a contract protecting $ 10 million of debt.
Pimco raised its forecast for growth by 1 percentage point to 3.5 percent after Obama agreed to extend the tax cuts enacted by his predecessor as Federal Reserve chairman, Ben S. Bernanke, aims to reduce unemployment and prevent deflation by buying Treasuries. The Federal Reserve has kept its benchmark interest rate in a range from zero to 0.25 percent for two years.
"The experience of running fast, or at least run faster, is something that is ultimately the U.S. economy set to do," Kiesel wrote yesterday in a note on the website of the company.
the strongest growth will benefit the banks, guaranteed loans and junk bonds and qualified debt may be upgraded to investment quality, wrote.
Tighter spreads
The bank debt spreads have tightened 24 basis points to statements by the government this year, while investment grade bonds have dropped 20 basis points, Bank of America Merrill Lynch index data show.
Financial companies have tried to recover from the worst financial crisis since the Great Depression to get cheap loans and buying government bonds. Since the beginning of 2007, have lost 1.8 trillion U.S. dollars worldwide and grossed nearly $ 1.6 trillion.
U.S. commercial banks are on track this year to buy most of Treasury and agency debt since the Fed began tracking the data in 1950, adding 193 billion U.S. dollars of securities through December 1 and for a total of 1 , 64 trillion U.S. dollars.
Asset Sales
Federal regulators demanded boost Bank of America common stock for $ 3 million through the sale of assets as part of the company's agreement to pay $ 45 billion in bailout funds. It sold assets such as stakes in Mexican and Brazilian banks, recording $ 1.9 billion in net profit from 30 September.
The Treasury sold its remaining shares in Citigroup by 10.5 billion U.S. dollars earlier this month, bringing the third largest bank in the country a step closer to independence from the government of 2008 after his rescue.
Citigroup shares have risen 39 percent this year. The stock has lost 92 percent of its December 2006 high of $ 56.41. Credit default swaps insure Citigroup's debt against default has fallen 524 basis points since April 2009 high of 667 basis points, according to data provider CMA.
The banks' capital have built like crazy in the last six quarters, "said Kiesel. "They raised private funds to pay the government again, and then, most importantly, that agencies began to pay off the balance sheets of improvement and all that net income does not go into new loans, went to the repair of balance. "
Bank of America
Bank of America were the bonds of U.S. securities more marketed by the corporate distributors yesterday, with 224 transactions of $ 1 million or more, according to Trace, the bond information system in the prices of the Financial Industry Regulatory Authority. Their percent notes due 5875 in January 2021 with a yield of 5.97 percent. The debt is likely to be rated A2 by Moody's, five levels above speculative grade.
Performance "makes no sense" because it is comparable to some garbage values, said Kiesel. Ford Motor Co. 's $ 1,250,000,000 of 8.125 percent bonds due in January 2020 the yield of 6 percent, and classified Ba2 by Moody's, or six levels lower, tracking data show.
U.S. companies have accumulated 943 billion U.S. dollars in cash, compared with 937 billion U.S. dollars at the end of 2009 and 775 billion U.S. dollars in 2008, Moody's said in a report.
"The government is trying to do everything possible to release this money on corporate balance sheets and get them in the real economy," said Kiesel. "Unless companies really start spending and hiring more aggressive, you will not escape velocity."
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